Preparing a Will which makes a gift to a beneficiary contingent on reaching a certain age is one way, or alternatively, trusts can be used.
It is important to seek legal advice when preparing a Will, especially if you are hoping to include age contingencies, as there may be tax implications that need to be borne in mind.
Age Contingencies in Wills
Age contingencies in a Will are quite common. Many people wish to leave their estate to their children but subject to them reaching a certain age first. It maybe that a parent sees no reason why their child or children should not inherit when they have died but they wish for their child or children to inherit when they feel the child will be more mature and capable of managing their inheritance instead of spending it straight away.
Where a parent leaves a gift to a child contingent on them reaching their 18th birthday, this creates a ‘Bereaved Minors Trust’. These trusts benefit from special tax treatment which may also benefit the bereaved minor. Under a Bereaved Minors Trust, the child beneficiary will become absolutely entitled to the inheritance on their 18th birthday.
However, some parents may be concerned about whether the age of 18 is the right time to inherit a potentially large sum of money. In this case, parents may choose to set a higher age contingency between 18 to 25 years. Provided the beneficiary inherits by the age of 25, this trust will also attract special tax treatment. These trusts also give parents some comfort knowing that their child won’t have to manage a potentially large amount of money at a young age.
During the trust period, where the beneficiary has not reached the required age contingency then the Trustees under your Will can consider whether it is appropriate to advance income or the capital from the share of the inheritance to the minor child for their maintenance, education and general benefit.
The Trustees can also consider advancing the whole of the beneficiary’s share before they satisfy the age contingency, if considered appropriate. Although it is important the trustees seek advice at this time as to the potential consequences of this.
However, Prince Harry was unable to inherit until the age of 40, which is different again. It is important to seek legal advice when considering including age contingencies as the age contingency might attract certain tax treatment – which may not always be favourable.
If someone creates a trust and includes an age contingency for someone who is not their child, then this trust may be subject to a different tax regime which may include inheritance tax charges at different points in the trust’s life including exit charges and anniversary charges. These can be less favourable so it is important to seek legal advice when considering an age contingency.
Until such time as the beneficiary satisfies the age contingency, the money will be held in trust by the trustees. It is therefore important to choose the trustees wisely ensuring that they are people you trust and who are good at handling money.
Trustees have a range of administrative duties, responsibilities and obligations which they owe to the beneficiaries of the trust, so when taking on the role of a trustee it is important to seek advice to ensure that they are aware of what these are.
There is now a requirement to register certain trusts with HMRC, so this needs to be carefully managed too.
Next Steps...
If you are thinking of making a Will or have questions about trusts or age contingencies, please contact me at m.lovell@timms-law.com or 01530 564498.
