Planning for the future of your loved ones is a crucial step in any family’s financial and legal arrangements, but for those with young children, it can be even more important. While we all hope that our children will never have to experience a loss at a young age, it’s important to consider how they will be provided for in the event of your passing. One way to ensure financial protection for children who have lost a parent is through a Bereaved Minors Trust.
At Blackstone Solicitors, we understand that estate planning can be complex and sometimes overwhelming, particularly when considering the needs of children. This guide is designed to explain what a Bereaved Minors Trust is, how it works, and why it might be an essential consideration for families across England and Wales.
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Who is Eligible for a Bereaved Minors Trust?
A Bereaved Minors Trust is available in specific circumstances. To establish a Bereaved Minors Trust, the following conditions must be met:
- The beneficiary (the child) must be under the age of 18 – The trust is specifically designed for minors who have not yet reached adulthood.
- The beneficiary must have lost at least one parent – The trust can only be established for a child who has suffered the death of a parent or adoptive parent.
- The trust must be set up by the will of the deceased parent – In most cases, the trust will be established in the parent’s will, which means it must be arranged as part of the estate planning process. Alternatively, it can also be set up through the statutory intestacy rules if no will has been left.
It is important to note that the child must receive the entire capital of the trust when they reach 18. This is a key requirement of a Bereaved Minors Trust, unlike other types of trusts that may allow for extended management beyond that age.
How Does a Bereaved Minors Trust Work?
A Bereaved Minors Trust functions by placing assets—usually inheritance from the deceased parent—into the trust. These assets can include property, savings, investments, or other financial holdings. The trust is managed by trustees, who have the legal authority and responsibility to oversee the assets.
- Trustees’ Role:
The trustees, often close family members, solicitors, or financial advisors, are responsible for managing the trust in a way that benefits the child. Trustees make decisions about how funds are spent and ensure that the child’s needs are met, including education, housing, and any other necessary expenses. Importantly, trustees must act in the best interests of the child at all times. - Use of Funds:
During the period in which the trust is active (before the child turns 18), the trustees may release funds as necessary to support the child’s upbringing. For example, funds may be used to cover educational costs, healthcare, extracurricular activities, or even day-to-day living expenses. However, the trustees cannot distribute large lump sums to the child until they reach the age of 18. - Age 18 Transfer:
When the child reaches 18, the trust ends, and the remaining capital (or whatever is left in the trust) is transferred to the child. This means that, at 18, the child gains full control over the assets within the trust. Depending on the size of the inheritance, this can be a significant amount of money, so it is important to provide proper guidance and support as they transition into managing these assets.
Tax Implications of a Bereaved Minors Trust
One of the main advantages of a Bereaved Minors Trust is the favourable tax treatment it receives compared to other types of trusts. In most cases, these trusts offer considerable relief from Inheritance Tax and are exempt from the more onerous tax charges that apply to some other types of trusts, such as Discretionary Trusts.
Here are the key tax considerations for a Bereaved Minors Trust:
- Inheritance Tax (IHT):
A Bereaved Minors Trust typically does not attract the standard 40% Inheritance Tax charge that might apply to larger estates. This means that, upon the death of the parent, assets left in the trust for the child are not subject to immediate IHT if the value of the estate falls within the nil-rate band or has the benefit of additional IHT allowances such as the residence nil-rate band. - Capital Gains Tax (CGT):
During the period that the trust is active (before the child turns 18), there is no need to pay Capital Gains Tax on any gains made by the trust, provided the assets are not sold. - Income Tax:
Any income generated by assets within the trust, such as dividends or interest, is subject to Income Tax. However, the trust may benefit from tax relief on some income, particularly if the income is used for the child’s benefit.
The Importance of Professional Guidance
Setting up a Bereaved Minors Trust requires careful planning and thorough knowledge of UK trust law. There are several elements to consider, including who will serve as trustees, how the trust will be funded, and what type of guidance or stipulations should be placed on the trustees to ensure that the child’s interests are protected.
Common Questions About Bereaved Minors Trusts
Can a Bereaved Minors Trust be used for stepchildren?
Yes, provided the stepchild has been legally adopted by the deceased parent. The trust can be set up for any child who has lost a parent or adoptive parent.
What happens if both parents die?
In the unfortunate event that both parents pass away, the trust can still be set up by either parent’s Will or via the rules of intestacy if no Will is in place. The assets would be managed by the trustees until the child reaches 18.
What if the child is already over 18?
A Bereaved Minors Trust cannot be set up for children who have already reached 18. Other trust options, such as Discretionary Trusts, may be available to manage inheritance for adult children.
Final Thoughts
A Bereaved Minors Trust provides an effective way to ensure that your child’s inheritance is managed responsibly and securely in the event of your passing. With its tax advantages and flexible management options, it can offer peace of mind to parents planning for the unexpected.
How we can help
We have a proven track-record of advising upon all aspects of private client work. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.to incorporate, what kind of ownership
How to Contact Our Private Client Solicitors
It is important for you to be well informed about the issues and possible implications of dealing with trusts. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Trust 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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