The rules of inheritance can be a little difficult to unravel especially if you’re wondering if a child under 18 can inherit.
We will guide you through some of the important points around trusts, wills, and leaving minors gifts.
If a child under 18 is left a gift under a will, arrangements must be made on their behalf to look after any assets until they are old enough to inherit. However, in certain circumstances, capital from a trust fund may be given to a parent or the minor for their maintenance under the Trustee Act 1925.
Can a minor be a beneficiary in your will?
Although minors (specified as anyone under 18) can be beneficiaries of an estate, in general, they aren’t allowed to accept a share of an estate or a gift until they reach 18 years of age.
By law they are not deemed to have the ‘capacity’ to receive any gifts of money or any part of a deceased estate.
What usually happens if anyone wishes to leave a gift to a child under 18, is that the funds will be kept ‘in trust’ by people known as ‘trustees’ who will be named in the will.
Trustee information in a ‘letter of wishes’
The person who has made the Will, known as the testator, can leave what’s called a ‘letter of wishes’ alongside the Will, outlining any important trustee information regarding a gift in a Will to a minor.
The ‘letter’ will also include the ways the testator wishes the funds to be invested or used for the under 18 whilst it is being held in trust.
A gift or inheritance can be left to the parent of the minor
As we mentioned in the short answer, there are certain circumstances where the gift or inheritance can be paid to the parent of the minor but this will depend on the terms of the Will.
When you are writing your Will as a parent, it’s worth noting that it’s useful to leave your gifts or any share of an estate to ‘my children’ other than individual names, especially if you might be considering having other children.
Also if you would like to leave a share of your estate to any stepchildren, they must be referred to as such within the Will. This is because they won’t have any entitlement as simply your ‘children’.
What is trust?
In a nutshell, a trust is an arrangement bound by law that states that a trustee (or trustees) are the custodians of property such as gifts or a share of an estate on behalf of the beneficiary.
A beneficiary is a person under 18 or another who will benefit from your Will.
This means that until a young person under 18 reaches ‘majority’ or turns 18, the trustee will look after their share of the estate.
Who should you choose as a trustee?
It goes without saying that a trustee should be someone well known to the testator and also someone who they regard as trustworthy.
Often, a child’s guardian is a good choice and many choose to use them as a trustee.
This is because usually, they will have a good understanding of the child and their requirements.
It is important to make sure any trustee understands what is required of them as a trustee.
A bare trust is one of the simplest types of trusts you can use so that under 18’s can inherit.
It helps to understand more about what a “bare trust” is, so let’s look at that next.
What is a bare trust?
A bare trust is one of the simplest types of trust. They are very often used as a way to hold shares for any minors (children under the age of 18).
This type of trust typically uses very little paperwork and is fairly cheap when compared with other types of trust. They also are also fairly advantageous tax-wise.
In this type of trust, the trustee (or otherwise known as the nominee) holds all assets ‘passively’ for the beneficiary (the under 18-year-old who benefits from the will).
The under 18 or the beneficiary is entitled to both capital and income. Once they reach the age of 18 and are classed as ‘legally capable’ they are able to accept the assets held.
Disadvantages of a bare trust
Although these types of trusts are very simple and cost-effective, they can have disadvantages.
This is mainly because once a child reaches the age of 18 they are automatically given the right to take possession of any shares or other estate particulars as soon as they are 18.
Many parents and grandparents worry that although this is legal at the age of 18, many young people are still not old enough to make the best decisions for the use of their inheritance.
This often leads people to wonder if you can set up a trust so that the beneficiary will not know of the inheritance at age 18.
Can I set up a bare trust secretly?
You may want the beneficiary to be unaware and does not take control of the assets at age 18.
A bare trust can be set up without the young person knowing of the inheritance. However, this can be more complicated if there is a substantial amount of money or capital gains. Mainly because of the tax obligations on such inheritance.
The main thing to remember is that even if a bare trust is set up without a minor’s knowledge, upon reaching 18, they must be told.
Do you need to set up a trust for minors in advance?
It’s not a legal requirement to set up a trust for an under 18-year old before you write your Will. However, it can be done.
If the Will is creating the trust for any minor it’s worth noting that you will need to appoint two trustees.
What happens if you have not set up a trust
If you haven’t written a will or have not put a trust in place, then an automatic trust will be established for any beneficiaries under the age of 18.
Until the young people benefiting from an inheritance reach 18, an executor or administrator will look after those funds until the beneficiary reaches the age of 18.
How much it costs to set up and run a trust
The cost of setting up a trust can vary and it depends on your personal circumstances.
A bare trust, as we found out earlier, is set up at a minimal cost, but if you have a more complex set of circumstances with substantial income and other assets the cost is usually more.
It’s worth understanding that any ongoing expenses by the trustee, along with any tax requirements need to be included in the cost of the trust. These costs are usually annual tax accounts and returns.
A solicitor can advise you on the likely costs for your particular requirements.
And finally…
If you would like some advice from our team of experts concerning a trust in your Will for an under 18 or any provisions already included in it, contact us here
Registered with Certainty, the National Will Register, our expert legal support at Robertsons Solicitors will help you handle complex family matters and explore your options.
