Bequeathing an inheritance in trust

They received a one off payment not £100k a year. That money was used as a house deposit.

Zighy4

My MIL set up a trust for her GC to receive on their 21st birthdays. It was meant to be tax efficient but was anything but. It took both children into a higher rate tax bracket and they were forced to not only pay the tax owing but to pay a chunk of their student loan. It amounted to almost 50% of what they both received plus the intervening tax years have been a nightmare for them as once HMRC puts you into a high tax bracket it keeps you there until you spend hours on the phone trying to rectify it.

Honestly it was a nightmare and on reflection we wish Granny had just paid into a tax free isa every year. It would have netted a better outcome and return.

I have to ask why were the children taking a student loan when there were trust funds paying £100k plus each year. The student loan would have to be paid back anyway and 50% is the current highest tax rate because you loose your personal allowance as well.

Obviously expectations of little tax were not met

Trust used to be a good way of passing on money, but they seem to have fallen out of favour. It is such a complex issue that it does require specialist legal advice. There are specialist trust financial advisors to get you through the legal pitfalls.
I do know, if your assets include your home, you can each leave £500K to grandchildren, and you can leave half of it directly to them with a lifetime residency for surviving spouse.

Friends of mine lost their home because a faulty trust allowed the creditors of their DGS husband to take it to clear his debts, so do get professional help

My MIL set up a trust for her GC to receive on their 21st birthdays. It was meant to be tax efficient but was anything but. It took both children into a higher rate tax bracket and they were forced to not only pay the tax owing but to pay a chunk of their student loan. It amounted to almost 50% of what they both received plus the intervening tax years have been a nightmare for them as once HMRC puts you into a high tax bracket it keeps you there until you spend hours on the phone trying to rectify it.

Honestly it was a nightmare and on reflection we wish Granny had just paid into a tax free isa every year. It would have netted a better outcome and return.

For a couple that have children together “mirror” wills are a safe choice, the surviving spouse can then decide how to distribute the estate on their passing with the minimum of hassle and no tax due at that stage.

Beware there are still rules that have to be followed or you can loose allowances, if a second marriage is involved much more thought needed and possibly a trust, getting an experienced solicitor to set that up will probably be the best money you ever spend.

Getting it wrong and having a dispute, either with an aggrieved beneficiary, or the revenue can (and has) cost the entire estate in legal fees and tax

You need to see a solitictor otherwise things may go per shaped when one of your dies.

Be very careful, my mother-in-law did this and the trust company went bankrupt. Took nearly 3 years to get a small amount back. nothing like she left.

Do you have two wills ? In which case you probably have mirror Wills and not one joint one. Who drafted the Wills and how did they advise/ what did you say you wanted ?

It would be beneficial if you could put the exact wording of the clause here, omitting names, as I think there might be a confusion in terminology.

That said, anything stated in your Will happens on your death and is dealt with by the executors during the post death admin - you are not doing anything prior to that .unless you are proposing to set up some sort of a Trust during your lifetime, but I don’t think that’s what you mean.

There is no ‘standard approach’ but in a lot of cases where there is a married couple with children, you pass your assets to each other and then down to your children when the second passes away. Some also then carve out a proportion for grandchildren at the second death and give the balance to adult children and this sounds like this could apply here.

The reference to the gift to the grandchildren being ‘in Trust’ could be because the money may have to be held until the grandchildren come of age to the age specified in your Will in which case the money is just held in a separate trustee account until it can be distributed.

I am just guessing /assuming of course and you may say that none of this applies !

Do not try to set up a trust without legal advice, you could easily end up paying tax twice - I have seen it done.

Ask your question of your solicitor.

The estranged grandfather of a colleague’s dh left a lot of money to her dcs, in a trust, not to be accessed until they were of a certain age.

The trust was administered by solicitors, and took a very long time to wind up, after the solicitors were charging £££ for what was apparently endless letters, phone calls, emails.
Just saying.

But watch out. We have such a trust fund set up by our solicitor, funds to be divided equally when youngest reaches 25. I now fear that we may be hit by care costs for DH, so that we need that money more than they do, but it can’t be altered. Of course solicitor should have discussed this possibility, but reputable firm, used before, and we didn’t spot it.

Are you sure this is a joint Will? Most solicitors would advise against them as they are very restrictive for the surviving spouse.

You say after we die but are any assets passing into trust on the death of the first spouse?

If the intention is to put assets into trust after a settlor’s death then this is known as a Will Trust. The trust comes into existence on the death of the settlor so nothing needs to be done in the settlor’s lifetime. The Will(s) should name the person(s) you want to be trustee(s) whose job it is to manage the assets - not necesarily the same person(s) as the executors.

The trustees become the legal owners of the assets to carry out the settlor’s wishes and deal with all administrative matters.

www.gov.uk/trusts-taxes#:~:text=the%20%27settlor%27%20%2D%20the%20person%20who%20puts,the%20person%20who%20benefits%20from%20the%20trust.

See a solicitor to get this written up professionally so there is no doubt about your wishes.

Your wills need to take account of the possibility that you may or may not die together, so the concept of “ our joint will” is inappropriate. Maybe you mean mirror wills?

Will the money be available on first death, or only on second death?
Would it be better to spend the money on them now eg for something educational? Or pay into a Junior ISA for them? Their parent will need to open it.

A simple answer is that your executors can sort it out, as money for children under 18 will have to be held in trust for them, but what form that takes may vary according to the law at that time and what is available or appropriate at that time. That could be different according to their age. If they are already 18 when you die they will inherit straightaway and you don’t want that money to be trapped in a trust.
Lots to think about.
Speak to a STEP solicitor.

Sadgrandma

I think you would be wise to clarify this with a solicitor.

Totally agree.

I think you would be wise to clarify this with a solicitor.