When planning your estate, you may want to leave money or property to your children, grandchildren or godchildren. But deciding who should inherit is only part of the process. It is also important to consider when they should receive their inheritance and how it can be managed until they are ready.
For many families, giving a child a substantial inheritance at the age of 18 may feel too soon. A trust can provide a way to manage assets on a child’s behalf, helping to cover education, living expenses and other important costs while protecting their inheritance until they reach a suitable age.
At Viva Planning, we can help you explore the different types of trusts available and understand which arrangement may be appropriate for your family’s circumstances.
Understanding the Different Types of Trusts for Children
The most suitable trust will depend on several factors, including the value of the inheritance, your relationship with the child and the age at which you want them to receive full control of their assets.
Bare Trusts: A Simple Way to Hold Assets for a Child
A bare trust allows assets to be held by trustees on behalf of a named child. The trustees manage the assets until the child reaches the age of 18, when the child generally becomes entitled to take full control of them.
For tax purposes, the income and gains are generally treated as belonging to the child, although special income tax rules may apply when a parent provides assets for their own minor child.
A bare trust may be worth considering when you want to make a relatively modest gift, are comfortable with the child receiving full control at 18, and prefer a straightforward arrangement.
However, this option may not be appropriate if the inheritance is substantial, the child may struggle to manage money independently or you want to delay their access beyond their 18th birthday.
An Important Note for Parents
If a parent places assets into a bare trust for their own unmarried minor child, special income tax rules may apply. Under these rules, income exceeding the relevant £100 annual threshold may be attributed to the parent for income tax purposes. Different rules generally apply to gifts from grandparents, godparents and other individuals.
Understanding these tax implications before establishing a trust can help you choose an arrangement that suits your circumstances.
Bereaved Minor's Trusts: Inheritance Available at 18
A Bereaved Minor’s Trust is a special type of trust that can be established through a parent’s will for a child under 18.
The trust holds the child’s inheritance until they reach adulthood. The trustees can use the assets for the child’s benefit during this period, but the child must become absolutely entitled to the inheritance by the age of 18, provided the statutory conditions are met.
One of the main advantages of this arrangement is its inheritance tax treatment. Qualifying Bereaved Minor’s Trusts are generally excluded from the relevant property regime, meaning they are not subject to the usual 10-year periodic inheritance tax charges and associated exit charges.
This type of trust may be suitable for parents who want to ensure their children inherit through their will, with the inheritance managed on their behalf until they turn 18.
However, parents should consider carefully whether 18 is the right age for their child to receive unrestricted access to a potentially significant amount of money.
18-to-25 Trusts: Giving Children More Time
For parents who feel that 18 is too young for a child to manage a substantial inheritance, an 18-to-25 Trust may offer a useful alternative.
Under section 71D of the Inheritance Tax Act 1984, qualifying trusts created through a parent’s will can allow a child to receive their inheritance at a chosen age between 18 and 25.
Until the child becomes absolutely entitled to the assets, the trustees manage the inheritance and can apply funds for the child’s benefit in accordance with the trust’s terms.
The inheritance tax treatment can also be more favourable than that of a standard discretionary trust, provided the relevant statutory conditions are satisfied.
Qualifying 18-to-25 Trusts are generally not subject to the usual 10-year periodic inheritance tax charges. However, an exit charge may apply if the child becomes absolutely entitled after turning 18. The amount depends on the circumstances and timing.
An 18-to-25 Trust is generally available where the arrangement is created under a parent’s will, subject to the statutory requirements, or in certain circumstances under the Criminal Injuries Compensation Scheme. It is not a general option for grandparents wishing to establish the same arrangement through their own wills.
For many parents, this type of trust is worth exploring when they want to give their children additional time to develop financial independence before receiving their inheritance.
Choosing the Right Trust for Your Family
Every family has different priorities, and the right trust will depend on your intentions, the child’s needs and the level of control you want to retain over the inheritance.
A bare trust may suit families looking for a straightforward arrangement where the child can receive their inheritance at 18. A Bereaved Minor’s Trust may be appropriate when a parent wants to leave assets to a child through their will, with entitlement at 18.
An 18-to-25 Trust may be more suitable when parents want to delay full entitlement until their child is older.
For grandparents who want greater flexibility over when and how their grandchildren benefit, a discretionary trust may be worth considering. A vulnerable beneficiary trust may also be appropriate where a child or adult has a disability or other circumstances that mean they may need additional protection, provided the relevant requirements are met.
Each arrangement has different legal, tax and administrative implications. It is important to understand these differences before deciding which structure is right for your family.
The Importance of Choosing the Right Trustees
Trustees play an important role in managing a child’s inheritance. Their responsibilities may include looking after investments, making payments towards education and living costs, maintaining financial records and ensuring that the trust is administered correctly.
When choosing trustees, consider people who are responsible, trustworthy and capable of making decisions in the child’s best interests.
Some families choose relatives or close family friends. Others may consider including a professional trustee to provide additional expertise and continuity.
It is also sensible to appoint replacement trustees in case an existing trustee becomes unable or unwilling to continue. This can be particularly important when the trust may remain in place for many years.
Choosing suitable trustees helps ensure that the inheritance is managed responsibly and in accordance with the terms of the trust.
What Trusts for Children Cannot Do
Trusts can be valuable estate-planning tools, but they are not a solution to every financial or legal concern.
A trust should not be treated as a guaranteed way to avoid care fees. Transferring assets may be considered deliberate deprivation of assets if avoiding foreseeable means-tested care charges is a significant purpose. The relevant rules depend on the circumstances.
Trusts also cannot guarantee protection from creditors in every situation, as certain transfers may be challenged under insolvency legislation.
Similarly, establishing a trust does not automatically eliminate inheritance tax. Tax may still be payable, particularly where the rules on gifts with reservation of benefit apply.
Finally, a trust does not replace the need for a properly drafted will. A will and a trust serve different purposes and may need to work together as part of a wider estate-planning strategy.
The legal and tax consequences of establishing a trust should always be considered before assets are transferred or documents are signed.
Plan Your Children's Inheritance with Viva Planning
Leaving an inheritance to your children or grandchildren is an important decision. The right planning can help ensure that assets are managed appropriately, your intentions are clearly documented and your family’s needs are considered.
Whether you are exploring a bare trust, a Bereaved Minor’s Trust or an 18-to-25 Trust, understanding the differences can help you make a more informed decision.
Viva Planning can help you explore your estate-planning options and understand the questions to consider before choosing a trust. The most appropriate arrangement will depend on your individual circumstances, your family and your long-term wishes.
Taking time to plan ahead can help you make thoughtful decisions about how your wealth will benefit the next generation.
