When it comes to estate planning, there are specific considerations for ensuring that young beneficiaries are provided for in a way that best serves their needs. A Bereaved Minors Trust (BMT) can be an effective tool for parents and guardians wishing to safeguard the financial future of their children. In this article, we at Blackstone Solicitors aim to guide you through the process of creating a Bereaved Minors Trust, explaining what it is, how it works, and the compliance steps you need to take when setting one up in England and Wales.
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What Is a Bereaved Minors Trust?
A Bereaved Minors Trust is a special type of trust designed to hold and manage assets on behalf of a child who has lost one or both parents. The purpose of the trust is to provide financial support for the child’s upbringing until they reach a certain age. Under current legislation in England and Wales, a Bereaved Minors Trust can be created to benefit a child until they reach the age of 18 or up to 25, in some circumstances.
Once the child reaches the specified age, the trust comes to an end, and the assets held in the trust are transferred to the child outright. This type of trust offers favourable tax treatment compared to other forms of discretionary or family trusts, which makes it a popular option for parents planning their estates.
Why Use a Bereaved Minors Trust?
Using a Bereaved Minors Trust provides peace of mind to parents and guardians who want to ensure that their children are financially secure, even in the event of their untimely passing. Some benefits of using a Bereaved Minors Trust include:
- Protection of Assets: The assets placed in the trust are protected and used solely for the child’s benefit until they reach adulthood.
- Favourable Tax Treatment: Bereaved Minors Trusts are not subject to Inheritance Tax charges that typically apply to other types of trusts. Income and capital gains arising in the trust are also treated favourably, with specific exemptions and allowances.
- Flexibility in Distribution: Trustees have the discretion to use the assets in the trust to cover the child’s educational expenses, maintenance, and other needs.
Key Requirements for a Bereaved Minors Trust
To ensure compliance when creating a Bereaved Minors Trust, you need to adhere to specific legal requirements. The main conditions are:
- The trust must be established as a result of a parent’s death: A Bereaved Minors Trust can only be set up if the beneficiary is the child of a deceased parent, meaning that the trust must arise from the terms of a will or intestacy (where there is no will) following the parent’s death.
- The beneficiary must be under the age of 18 at the time the trust is created: The trust should be established for a child who has not yet reached adulthood. Once they turn 18, the assets are typically transferred to them outright.
- The trust must specify that the child becomes absolutely entitled to the assets at the age of 18: While the assets can be held until the child reaches 25 in some cases, the law requires that the child be entitled to the trust assets at 18, with no conditions beyond that age.
- The assets must be used solely for the benefit of the child: This includes costs for maintenance, education, and other needs. The trustees cannot use the trust’s assets for any other purpose.
Steps for Creating a Bereaved Minors Trust
To set up a Bereaved Minors Trust, there are several steps to follow to ensure the trust is legally compliant. Here’s how you can establish a Bereaved Minors Trust in a way that meets the statutory requirements.
The first step in creating a Bereaved Minors Trust is to include provisions for the trust in your will. The trust should specify that the assets are to be held for the benefit of your child or children in the event of your death, ensuring that the trust is clearly established as a result of the terms of the will.
To comply with legal requirements, you must outline in the will that the child becomes entitled to the trust assets at the age of 18. If you wish for the trustees to continue managing the assets beyond the child’s 18th birthday, you can include a provision allowing the trust to continue until the child reaches 25. However, the child must have the right to access the assets from age 18.
- Choosing the Trustees
Appointing suitable trustees is a critical aspect of ensuring compliance. Trustees are responsible for managing the trust’s assets on behalf of the child until they reach the specified age. It is advisable to appoint at least two trustees, and you may wish to choose family members, friends, or professionals who are likely to act in the child’s best interests.
Trustees have a fiduciary duty to act prudently and make decisions that will benefit the child. It is therefore crucial to select individuals who understand the responsibilities involved and can be trusted to manage the assets appropriately.
- Registering the Trust
Bereaved Minors Trusts must be registered with HM Revenue & Customs (HMRC). This process involves providing details about the trust, including the trustees’ identities and the trust’s assets. Registration ensures that the trust is recognised and can benefit from the tax exemptions associated with Bereaved Minors Trusts.
You should also ensure that the trust is included on the Trust Registration Service (TRS), which is mandatory for all express trusts in the UK. This registration helps maintain compliance with anti-money laundering regulations.
- Managing the Trust’s Assets
Once the trust is set up and registered, trustees must manage the assets prudently. They are required to keep detailed records of all decisions, distributions, and transactions involving the trust. The funds should be used to support the child, covering living expenses, educational costs, and other necessities.
To remain compliant, trustees should conduct regular reviews of the trust’s financial performance and make adjustments to investments where appropriate, always keeping the child’s best interests in mind.
- Tax Reporting Obligations
Bereaved Minors Trusts enjoy specific tax benefits, such as exemption from Inheritance Tax charges during the trust’s lifetime. However, trustees must still fulfil certain tax reporting obligations. This includes filing annual tax returns and ensuring that any income generated by the trust is reported to HMRC.
The trustees should ensure that tax is paid on the child’s behalf where necessary and take advantage of any allowances or exemptions available. If the trust continues until the child is older than 18 but younger than 25, trustees need to be aware of changes in tax treatment.
Common Compliance Issues and How to Avoid Them
When setting up and administering a Bereaved Minors Trust, it’s important to be aware of potential compliance issues and how to mitigate them. Some common challenges include:
- Failure to Register the Trust: All trusts, including Bereaved Minors Trusts, must be registered on the Trust Registration Service. Failure to do so can result in penalties and loss of tax benefits.
- Incorrect Use of Trust Assets: The trustees must ensure that the assets are used solely for the child’s benefit. Using the trust assets for other purposes, even temporarily, can lead to legal issues and tax penalties.
- Non-Compliance with Tax Reporting Requirements: Trustees must keep up with tax obligations, including filing annual returns. Neglecting tax responsibilities can lead to fines and other repercussions.
Why Use Blackstone Solicitors?
Setting up a Bereaved Minors Trust is a complex process that requires careful consideration of legal requirements and compliance issues. At Blackstone Solicitors, we understand the importance of providing for your children in the event of your untimely death.
We offer personalised advice tailored to your specific circumstances and are committed to helping you create a legally compliant trust that ensures your child’s financial security. With our expertise, you can be confident that the trust will be set up and managed in line with all legal requirements, giving you peace of mind.
Conclusion
Creating a Bereaved Minors Trust is a thoughtful and responsible way to provide for the future of your children. By following the steps outlined above and ensuring that the trust is established in compliance with legal requirements, you can help secure your child’s financial wellbeing. At Blackstone Solicitors, we are here to assist you in every aspect of the process, ensuring that your wishes are fulfilled and that your child’s future is protected.
How we can help
We have a proven track-record of helping clients create Trusts. We are a multidisciplinary firm and have all the expertise inhouse to satisfy the most exacting requirements of our clients. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact Our Wills and Probate Solicitors
It is important for you to be well informed about the issues and possible implications of creating a Trust. However, expert legal support is crucial in terms of ensuring your wishes are met as you would want them to be.
To speak to our Wills and Probate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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