Leaving Money or Property in a Trust for Grandchildren UK
Leaving money or property in a trust for grandchildren in the UK is a common query that our will solicitors London answer when a client is thinking about succession and the distribution of their estate. For those who have been blessed to see their children grow older and start their own families, there might be some convincing reasons as to why you might want to leave your possessions to your grandchildren in a trust instead of leaving it to your children directly.
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Why Should You Skip a Generation?
Skipping a generation is often an overlooked technique in estate planning. However, it is becoming more common amongst testators who receive comprehensive legal and financial advice from family lawyers. Legal tools, such as ‘trust funds, can be used to execute the will of testators in a precise and efficient fashion which helps their family make the most of the estate.
Before considering the legal structures which testators can use to pass the property on to their grandchildren. It is useful to take a look at the significant reasons why testators might choose to skip a generation in their wills:
- Your children have already achieved financial stability. With a 40% inheritance tax being levied on the sum of your estate, which exceeds the nil-rate-band. Leaving your possessions to your children will only serve to inflate their own estate and lead to it being taxed at 40% each time it passes on to the next generation. A good way to save a substantial amount of money is by making your grandchildren the direct heirs to your estate and thereby preventing the property from being taxed twice.
- Perhaps your children have shown themselves to be financially reckless or display behaviour which you do not wish to encourage. Maybe one of your children has chosen a spouse who you do not approve of or trust to do the right thing by your grandchildren. By skipping a generation, you can be sure that your extended family will be supported by your estate and your inheritance will not be squandered by an irresponsible family member or spouse.
How Do You Go About Leaving Property for Your Grandchildren?
It is important to note that a child under the age of 18 cannot be the legal owner of land or property in the UK. This means that whichever method you choose to pass on your property to your grandchildren, it is highly likely that you will have to employ some form of a trust structure. This will entail assigning a trustee, which will usually be the parents. Nonetheless, here are the three main ways of passing on property.
- Outright gift – you can avoid paying inheritance tax altogether by gifting property to your grandchildren within your lifetime. As long as you do not pass away within 7 years of making the gift, it will be completely exempt from taxation. As mentioned above, if your grandchildren are below the age of 18, the property will have to be held in a trust until they reach adulthood.
- Assigning your grandchildren as benefactors upon your death – Failing to make a will usually leads to your property is automatically allocated to your children or spouse according to the rules of intestacy. Therefore, you should explicitly state in a will that you would like grandchildren to benefit from your estate. Baring in mind that grandchildren are also considered ‘direct descendants’ for inheritance tax purposes. You will still benefit from the additional allowance on the nil-rate-band if you are passing on your main residence to your grandchildren.
Structuring a trust fund for your grandchildren with a family lawyer – Trust funds are generally designed to allow you to pass on property to younger family members. They can be structured in a way that suits your unique situation and desires for the distribution of your estate. Depending on the type of trust you choose, your grandchildren can benefit from the property immediately, gain ownership upon adulthood or at any later date, which you can decide as the testator. The beauty of a trust fund is the level of control you will have in structuring its payout.
Types of Trust Fund
When considering leaving money (or property) in a trust for grandchildren UK, you will need to consider the different types of trusts and what they offer in terms of flexibility and efficiency:
- Bare trust – a rudimentary trust structure which simply means that the assets will be held by a trustee until the benefactor reaches adulthood or the moment you, the testator, specify. This could be a particular age or even when your grandchild gets married.
- Interest in possession trust – A specified benefactor is entitled to the interest coming from the asset whilst it is being held on trust, for example, rental income, dividends from a business or occupation of a flat. Once the asset leaves the trust, ownership can be passed on to that same benefactor or another designated ‘ultimate benefactor’. For example, you may want to allow your spouse or child to live rent-free in your house until they die, after which the property is transferred to your grandchildren.
- Accumulation trusts – this allows trustees to accumulate wealth from the property and add it to the estate. It also allows the trustee to pay out income where specified.
With the right information, you can structure a trust fund to provide a great deal of support to your loved ones as they grow older. Furthermore, their dynamic nature gives you control over their release and the number of people who can be supported by the same asset.
Letter of Wishes
You can accompany your will and trust fund with a letter of wishes. This can be used to inform your benefactors how and when you would like them to utilise the estate you leave them. This letter is not legally binding but is very useful and morally persuasive when your loved ones come into ownership of your estate.
Leaving Money in a Trust for Grandchildren UK – How Can We Help?
Contact our team of wills and probate solicitors for comprehensive advice on estate planning. We can lay out all your options regarding trust funds and wills to show you how to make the most of your estate, so it benefits your family in the long term. For expert advice, do not hesitate to contact us.
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Dr Bernard Andonian – the Co-Founder of Gulbenkian Andonian Solicitors, is an experienced Immigration Solicitor, former Judge, and recipient of a PhD in Law from the University of West London. He has over four decades of experience practising UK Immigration, Human Rights and Civil Litigation Law. He has served on the Law Society Immigration Law Panel, achieved numerous groundbreaking decisions in higher courts and is featured in the Legal 500’s Hall of Fame.