Child's inheritance - ADVICE NEEDED!

Cooboo

My 10‑year‑old daughter has inherited £75,000 from her uncle. Before he passed away, he mentioned that he had intended to update his will to include her younger brother, who was a baby at the time, but he never had the chance to do so.

My husband and I have decided not to tell the children about the inheritance yet. We plan to look after the money on her behalf and invest it sensibly so it grows over time. Our intention is to explain everything to them when they are older, and we hope that our daughter will choose to share the money equally with her brother.

The will states that she cannot access the inheritance until she turns 25, so we have around 15 years to manage it. My questions are: what is the best way to look after and invest this money over that period, we have no idea what do do with the money. At present its in her regular bank account? Is it reasonable for us to encourage her to share the inheritance with her brother?

GrumpyDil

Who had the rest of the money from the estate? Would it be possible to agree a variation to give her brother the same?

On a separate note you will need to note that I believe this will need to be registered as a trust and in most, if not all cases, she would be entitled to receive the money when she is 18, despite what the will says.

poseidon1

OP on reading your post, there seems some similarity with this trust and another covered in the thread below - 

https://forums.moneysavingexpert.com/discussion/comment/80997499#Comment_80997499?utm_source=community-search&utm_medium=organic-search&utm_term=trusts+to+age+25

Putting  aside the moral question as to whether you can call upon your daughter to share her inheritance with her brother ( in due course), there are some quite complex tax formalities you will need to address, assuming this trust is indeed enforceable to age 25, rather than potentially terminated at age 18.

The precise wording  of the will would established where you stand, but at the moment you maybe labouring under the misapprehension you are managing  a bare trust for your daughter which at first sight does not appear to be the case. 

suggest you carefully read the above thread and let me know if you have any queries on the tax points raised  therein.

xylophone

The will states that she cannot access the inheritance until she turns 25, 

Has the bequest "indefeasibly vested" in your daughter?

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem1568

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem1563

If so, the Trust is a bare trust and therefore your daughter would be absolutely entitled to access and control at the age of 18.

https://www.gov.uk/trusts-taxes/types-of-trust

Re registration required/not required  see 

https://www.gov.uk/hmrc-internal-manuals/trust-registration-service-manual/trsm23160

And see https://techzone.aberdeenadviser.com/public/iht-est-plan/Prac-guide-gifting-child-grand#anchor_4

If the bequest is an absolute gift to your daughter without condition or contingency,  and the Trust is bare, then she is already

the beneficial owner of the funds - therefore it would be permissible for you as Trustees to pay up to the maximum into a JISA in her

name each year up to age 18.

xylophone

Would it be possible to agree a variation to give her brother the same?

https://www.co-oplegalservices.co.uk/media-centre/articles-jan-apr-2018/deed-of-variation-explained/

For example, it may be that the will leaves the entire estate to be divided equally between three children, but there are four children of the deceased. As such, the children may wish to divide the entire estate between the four of them. In order to do this, the three children who have been named in the will would all need to be in agreement, as the change will affect how much each of them inherits. If only two of the children agree then they can only alter the share of the estate that they are entitled to.

Therefore if the entire estate that is to be distributed is worth £200,000 and the three children agree then each of the four children would be entitled to £50,000 each. If only two of the children agreed then the one child who does not agree would receive £66,666 and the two who agreed to vary the distribution would each received £44,444, together with the fourth child.

If the Deed of Variation would affect a beneficiary who is under 18, then it’s not possible to do this, as a minor cannot legally agree to a Deed of Variation.

Keep_pedalling

Unless the will states that your daughter’s inheritance is to be held in a discretionary trust or that is only payable if she reaches the age of 25 with an alternative beneficiary if she fails to reach that age she will be entitled to the inheritance once she is 18 years old (16 if you are in Scotland).

It is really unfortunate that he failed to make a new will as you have a potential difficulty situation on your hands once she comes of age. 

If you also inherited from him it would be possible to make a deed of variation to pass some of your inheritance to your son to even things up a bit, but you can’t do that with your daughter’s inheritance as only adults can make one.

saajan_12

Cooboo said:

Before he passed away, he mentioned that he had intended to update his will to include her younger brother, who was a baby at the time, but he never had the chance to do so.

My husband and I have decided not to tell the children about the inheritance yet. We plan to look after the money on her behalf and invest it sensibly so it grows over time. Our intention is to explain everything to them when they are older, and we hope that our daughter will choose to share the money equally with her brother.

...

Is it reasonable for us to encourage her to share the inheritance with her brother?

No. While she is a minor, she cannot agree to vary the will and you can't do it for her as it would be to her detriment. After 18 she can, but this encouragement could cause son to feel ill will if she refuses or cause daughter to if she feels pressured and feels she needs the money more. 

Was there any other money left to yourselves, or do you anticipate having enough in your estate to leave 75k more to son to even things up? 

Albermarle

My husband and I have decided not to tell the children about the inheritance yet.

. At present its in her regular bank account?

So you have not told her about it, but £75K is sitting in her bank account??

xylophone

Unless the parents were absolutely sure that this money had "indefeasibly vested" in their daughter,  under no circumstances should it have been deposited in an account in her name, whether as direct account holder or as the beneficiary of a bare trust.

poseidon1

xylophone said:

Unless the parents were absolutely sure that this money had "indefeasibly vested" in their daughter,  under no circumstances should it have been deposited in an account in her name, whether as direct account holder or as the beneficiary of a bare trust.

Must admit had overlooked that part of the post.

Seems the OP is overdue a very urgent review of her actions so far. An age 25 vesting age is entirely inconsistent with monies held in the the child's personal name and may already run afoul of HMRC rules if trust taxation in point.

Be interesting to see if the OP chooses to takes any notice of  these responses, and return to update the precise terms of the uncle's will to support what she has done so far.  Certainly there appears to have been little or no advice given when trust funds were handed over to their stewardship.

xylophone

Must admit had overlooked that part of the post.

It had missed me on first reading but Albemarle called it to my attention.