What happens when the children inherit the money held in trust?
My daughter and her cousins ââreceive money from their uncle’s will. We don’t know how much yet, but it’s at least Â£ 10,000 each.
The will says that the money must be held in trust until the age of 21. I don’t really understand what this means.
We would like to invest some of the money and save some of it in cash. Do you really have to pay a notary to create trusts? How it works? And is there a way to use some of the money before they’re 21 to pay for college?
Can you explain the process and our options?
Inheritance: What Should You Do When Your Children Are Left in Trust?
Ian Dyall, Estate Planning Manager at Tilney, responds: It is quite common for wills to create trusts, especially when the money is left with minor beneficiaries.
A trust is an arrangement whereby money or assets are given to one person or group of people (the trustees) to manage them for the benefit of another group of people (the beneficiaries).
The trust can either be explicitly created by a written deed or will, or it can be implied by the actions of the donor of the money (known as the settlor).
For example, if a grandparent gives money to their child with instructions to invest it on behalf of the grandchildren, a trust has been created for the benefit of the grandchildren even though no trust document exists.
In your case, the trust was created by will, so you don’t need to ask a lawyer to draft a trust. The will itself describes the terms of the trust.
Who assumes the role of trustee?
The will must determine who the trustees are, what assets or funds the trust contains, who are the beneficiaries and what they are entitled to.
Ian Dyall: “It is quite common for wills to create trusts, especially when the money is left to minor beneficiaries”
It can cover the powers of the trustees. In many cases where a will creates trusts for minor beneficiaries, very little is said in the will about the powers of the trustees.
In these cases, the powers of the Trustees will be determined by law – the Trustee Act 1925 and the Trustee Act 2000 – and these are explained below.
It is not clear from your question whether you will be a trustee of the trust, so this is something for you to determine.
Often, the executors of the estate will also be the trustees of any trust created by the will. The trustees are responsible for the management of the trust.
All assets of the trust must be held in the name of all the trustees on behalf of the beneficiaries.
They are obligated to manage the money in accordance with the terms and conditions of the trust using “reasonable skill and care” to do so.
They are also responsible for investing the money wisely, regularly reviewing the trust, keeping records of all transactions, completing the required tax returns, and paying any taxes owed on the trust money.
What tasks are trustees expected to perform?
Trustees should first obtain a copy of the will to learn about their powers.
While it is not necessary to see a lawyer to create the trust, it would be worthwhile to seek legal advice on what powers the trustees have, how the trust is taxed, what rights the beneficiaries have over the trust. capital and income and what the administrative requirements of the trust are.
If you’re trying to keep costs down, you can ask the estate enforcement attorney for advice on the trust created by the will. They will be the right kind of lawyer and know the case, so advice should be cheaper.
Taking advice at this point is likely to avoid mistakes and lower costs later.
As part of the administration of the estate, the executors will provide the trustees with the funds that are to be held in the trust.
Depending on how the will is worded, if there are multiple sets of parents and children involved as in this case, this may allow separate trusts to be created for each branch of the family rather than one. create one to cover all the children.
Either way, it’s worth creating separate jars within a trust for each child. They will have different needs when it comes to issues like college fees and will hit 21 at different times which will make it easier to keep track of their money.
Trustees need to think about how to invest these assets wisely. In doing so, they have an obligation (under the Trustee Act 2000) to obtain appropriate advice from a qualified person, unless they conclude that “it is unnecessary or inappropriate to do so” .
For example, one of the Trustees may be a Qualified Investment Advisor, or the amount involved may be too small to justify paying fees to an Advisor.
They will almost certainly have the power to invest in almost any type of investment except those that can only be owned by individuals like Isas. All investments must be held in the name of all trustees.
The choice of investments and how they are held is an important decision as it will determine, among other things, the returns on the investments, the level of tax payable and the amount of administration required.
You don’t mention the age of the beneficiaries, but the funds that may be needed within five years are probably best kept in cash so as not to be affected by short-term market fluctuations.
Longer-term investments should be invested in assets that have the potential to produce returns above inflation, such as equity-based mutual funds.
How do you pay to beneficiaries?
Unless the will provides otherwise, beneficiaries are likely to have the statutory right to receive any income produced from the age of 18. The lawyer should be asked to confirm if this is the case.
This would make investments that accumulate income inappropriate at this stage. It may be desirable in some cases to invest using a life insurance bond.
These have the advantage of producing no income – all returns are earnings – meaning that at age 18 the trustees have no obligation to pay anything to the beneficiaries and there is very few tax declarations to be made each year.
If you keep the money in cash accounts, these will provide income to be paid out to beneficiaries after the age of 18.
If trustees wish to pay money to a beneficiary before the age of 21, unless the will limits their statutory powers, the Trustee Act 1925 gives them the power to advance money to beneficiaries at purposes such as payment of university fees.
Any progress should be properly documented and records kept of what each beneficiary is entitled to from the remaining funds.
The allocation of benefits to beneficiaries may have income tax, capital gains and / or inheritance tax implications, so again, it is worth taking advice on this. stage because it may be possible to save considerably on these tax obligations.
When they turn 21 or reach any other age specified in a will, beneficiaries should receive their share of the money held in the trust at that time.
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