Trusts and Inheritance Tax

Providing for children

Produced by Tolley in association with Emma Haley at Boodle Hatfield LLP
  • 19 Oct 2021 23:13

The following Trusts and Inheritance Tax guidance note Produced by Tolley in association with Emma Haley at Boodle Hatfield LLP provides comprehensive and up to date tax information covering:

  • Providing for children
  • Outright gifts
  • Trust options
  • Trusts for older children
  • Considerations for the client’s own children and step-children
  • Considerations for grandchildren (or other people’s children)

Providing for children

The main consideration for a client who wants to provide for children in his Will is to decide the age at which they should inherit, and whether they are to inherit outright or whether their inheritance should be held in trust. This will boil down to personal preference, although clients will need some steering through the different tax consequences of the various options. Reference should be made to the practice notes elsewhere in this guidance note for a detailed discussion of the tax aspects relevant to each of the options mentioned below.

Outright gifts

These are usually more suitable for adult children. Inheritance tax may be payable on the client’s death and then the property becomes held in the children’s own estates for inheritance tax purposes. The possibilities of a future divorce, bankruptcy or a child’s profligacy are common reasons for avoiding an outright gift ― see ‘Trust options’ below.

Trust options

For younger children, clients invariably want some sort of trust.

Two types of trust which receive special inheritance tax treatment are provided for the client’s own children (including step-children):

  1. bereaved minors trusts (BMTs) ― where the children inherit at 18 (see the Trusts for bereaved minors guidance note)

  2. 18–25 trusts ― where they inherit at 25 (see the Age 18–25 trusts guidance note)

Other choices for the client’s own children and for any other youngsters such as grandchildren, god-children, nieces and nephews, or unrelated children include:

  1. interest in possession trusts ― where the children are entitled to the income from the trust assets, usually for life but possibly for a shorter period. If these trusts arise immediately on the client’s d

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