Clients tend to leave money under their Will for children or grandchildren. However, especially where the children are very young or the sums are large, we are often asked how this works in practice.
Wills can be structured to prevent children from accessing large amounts of money at too young an age, whilst still ensuring that living expenses and education costs can be met.
When should a child inherit?
The answer to this will depend greatly in each personal situation. The ages and personalities of the children, asset values, and your broader family circumstances will all be relevant.
Unless your Will specifies otherwise, a child will inherit at the age of 18. Many people consider this age as being too young or irresponsible to manage large sums, and instead specify a later age for the inheritance to pass to the child. The age of 21 or 25 is commonly chosen, but you could choose any age.
If you are not sure when a child should inherit, please do not let this stop you making a Will! An alternative is to leave your estate in discretionary trusts for a range of beneficiaries, including one or more children. Alongside that Will would sit a letter of wishes, with guidance to your trustees on how and when you would like the trust assets to be distributed. This can be informal, and can set out factors that you might like your trustees to consider in determining the age that a child should receive assets.
How will the child fund their living costs in the meantime?
If you set an age greater than 18 for the child to inherit, you may worry about how the child will fund day-to-day living costs. In this scenario, your trustees (choosing such is detailed below) can make payments to the children before the stated age to assist them as they may require. These must be for their maintenance, education or benefit. This could cover school and university fees, or perhaps assistance with buying a first home.
Depending on the amount and the child’s needs, the child may receive most or all of their inheritance before they reach the specified age. This is less likely for larger amounts. Payments must be documented and records kept, so it is clear what remains for the child at the relevant age. This is particularly important where multiple children have shares in a larger ‘pot’, and will each reach the specified age at different times.
Who should I choose as trustees, and how will they manage the funds?
Choosing trustees is extremely important and will be made when making your Will. You should appoint those you trust to act in your child’s best interests.
Many people appoint relatives or close friends, sometimes together with a professional, e.g. an accountant or solicitor. The trustees fulfil a different role to a child’s guardians (who will take care of a minor child’s general welfare).
The trustees will have powers to manage the trust fund. Trustees also have obligations, including acting in the best interests of the beneficiaries, avoiding conflicts of interest, keeping the trust assets separate from their personal assets, and ensuring proper records are kept. The trustees may wish to seek professional guidance to ensure they understand their powers and obligations, and the trust can be properly administered.
Trustees need not carry out all trust matters personally, and will usually have powers to delegate aspects of trust administration, e.g. investment decisions, and preparation of trust accounts and tax returns where necessary.
What about tax?
Whether Inheritance Tax is payable on a child’s inheritance will depend on your circumstances. Factors such as the value and type of your assets, the type of trust, your relationship with the child, and the age at which you wish the child to inherit will all be relevant. We can explore with you how Inheritance Tax might apply to your particular situation.
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Website content note: This is not legal advice; it is intended to provide information of legal interest about current legal issues.