When planning for the future, one important aspect is making provisions for minors who may inherit your estate. In the unfortunate event that a child loses a parent before reaching adulthood, a Bereaved Minors’ Trust (BMT) can provide a structured way to protect their inheritance and ensure it is used appropriately for their needs. For those in England and Wales, understanding how a Bereaved Minors’ Trust works, its benefits, and the associated legal considerations is crucial. This article outlines the key elements of setting up a Bereaved Minors’ Trust and explains how Blackstone Solicitors can guide you through the process.
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What is a Bereaved Minors’ Trust?
A Bereaved Minors’ Trust is a legal arrangement designed to manage assets left to children under the age of 18 when a parent or legal guardian passes away. It ensures that the assets are held and managed by trustees until the child reaches a specified age. By law, the assets must be transferred to the child outright by their 18th birthday. This type of trust offers a way to protect a young person’s inheritance while allowing for prudent financial management during their childhood.
Why Set Up a Bereaved Minors’ Trust?
The loss of a parent is a life-changing event for a minor, and receiving a large inheritance at a young age could pose challenges. Setting up a Bereaved Minors’ Trust can help mitigate these by ensuring that funds are handled responsibly and used for the child’s best interests. The key benefits of such a trust include:
- Financial protection: Trustees can use the trust assets for the child’s welfare, including education, healthcare, and living expenses.
- Asset management: Appointed trustees can manage and invest the assets prudently until the child reaches adulthood.
- Legal safeguards: It ensures compliance with laws governing minor beneficiaries, protecting the child’s inheritance until they are old enough to manage it themselves.
How Does a Bereaved Minors’ Trust Work?
A Bereaved Minors’ Trust is established through a parent’s will or under the rules of intestacy if there is no will. Upon the parent’s death, the estate or a portion of it is transferred into the trust for the benefit of the minor child. The trust must meet specific criteria to qualify as a Bereaved Minors’ Trust:
- The beneficiary must be a child of the deceased parent: The trust must be for the benefit of a biological or legally adopted child under 18.
- The assets must be transferred to the beneficiary outright by age 18: The trust cannot extend beyond the child’s 18th birthday.
- The child must be entitled to all the trust income: Any income generated by the trust assets must be for the child’s benefit.
Key Legal Considerations When Setting Up a Bereaved Minors’ Trust
The first step in setting up a Bereaved Minors’ Trust is to draft a will that includes provisions for such a trust. This involves appointing trustees, setting out the terms of the trust, and detailing how the trust assets should be used for the child’s benefit. It is essential to ensure that the will meets all legal requirements for a Bereaved Minors’ Trust under the Inheritance Tax Act 1984 to avoid potential tax complications.
For those who die intestate (without a will), the rules of intestacy may establish a statutory trust for minors. However, this approach may not fully reflect the deceased’s wishes or optimise tax planning.
- Appointing Trustees
Trustees play a crucial role in managing the Bereaved Minors’ Trust. They are responsible for looking after the trust’s assets and ensuring they are used in accordance with the trust’s terms. When selecting trustees, it is vital to consider individuals who are trustworthy, financially savvy, and likely to act in the child’s best interests. Trustees can be family members, close friends, or professional trustees such as solicitors or accountants.
The trustees’ duties include:
- Investing the trust assets: Trustees should make prudent investment decisions that align with the trust’s objectives and the child’s needs.
- Using the funds for the child’s benefit: This can include paying for education, healthcare, or general maintenance costs.
- Complying with legal obligations: Trustees must act in line with trust law and fulfil any reporting requirements.
It is also possible to appoint a professional trustee alongside a family member to combine financial expertise with a personal touch.
- Tax Considerations
Bereaved Minors’ Trusts benefit from favourable tax treatment compared to other types of trusts. Unlike discretionary trusts or other life interest trusts, Bereaved Minors’ Trusts are not subject to the standard inheritance tax charges applied every ten years or when assets leave the trust.
However, some tax implications must still be considered:
- Inheritance Tax (IHT): There is no IHT charge on the assets transferred into the Bereaved Minors’ Trust as long as it qualifies under the Inheritance Tax Act 1984.
- Income Tax: Any income generated by the trust is treated as the child’s income for tax purposes. If the child has minimal or no other income, the personal allowance can reduce the tax liability.
- Capital Gains Tax (CGT): There is no CGT when assets are transferred into the trust, and assets within the trust benefit from annual CGT allowances.
- Administrative Requirements
Once the Bereaved Minors’ Trust is set up, there are ongoing administrative duties to ensure the trust runs smoothly. Trustees must:
- Maintain proper records: This includes documenting all income, expenses, and investment transactions.
- Submit tax returns: Trustees are responsible for filing trust tax returns and paying any tax due.
- Provide annual statements: Beneficiaries may be entitled to receive information about the trust’s assets and income.
Trustees must also be mindful of changes in the law that could affect their obligations, particularly regarding taxation or child welfare laws.
What Happens When the Beneficiary Reaches 18?
By law, a Bereaved Minors’ Trust must terminate when the child reaches the age of 18. At this point, the trust assets must be transferred to the beneficiary outright, giving them full control over the inheritance. The trust can no longer impose restrictions on how the funds are used. For this reason, some parents may prefer to set up a different type of trust, such as an 18-25 trust, which allows the trustees to retain some control over the assets until the beneficiary turns 25.
Alternatives to a Bereaved Minors’ Trust
While Bereaved Minors’ Trusts offer unique benefits, there are other options for structuring a child’s inheritance, such as:
- 18-25 Trusts: Allows assets to be held in trust until the beneficiary reaches 25, with favourable tax treatment.
- Discretionary Trusts: Offers greater flexibility in managing assets for multiple beneficiaries but comes with different tax rules.
- Bare Trusts: The simplest form of trust, where the beneficiary is entitled to the trust assets and income as soon as they reach 18.
Each option has its own tax implications and legal requirements, so it is advisable to seek professional advice to choose the right trust structure for your situation.
How Blackstone Solicitors Can Help
Setting up a Bereaved Minors’ Trust involves navigating a range of legal and financial considerations. At Blackstone Solicitors, we offer comprehensive advice and services to help clients in England and Wales establish trusts that meet their needs and safeguard their loved ones’ futures.
Conclusion
Bereaved Minors’ Trusts are a valuable tool for protecting the interests of children who inherit assets following a parent’s death. By providing a structured approach to managing the inheritance, such trusts ensure that the child’s needs are met while complying with legal requirements. When setting up a Bereaved Minors’ Trust, it is important to consider the legal and tax implications, appoint suitable trustees, and ensure the trust is properly administered. Consulting with experienced solicitors, such as Blackstone Solicitors, can help you navigate this complex process and achieve peace of mind knowing your child’s future is secure.
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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