Trusts for Grandchildren

The word “Trusts”, in a financial planning context, is one of those terms that gets bandied about by all and sundry within financial services in the all too often misguided belief that all those on the outside immediately know what is being talked about.

I don’t intend to fall into that trap so let’s start with what a Trust is.

A Trust is a legal arrangement that allows a person to give an asset to another person but, crucially, without giving them control over it.

Trusts can be used for very complicated tax planning but that’s outside the scope of this article so let’s have a look at something a bit more simple and, hopefully, a bit more relatable to everyday life.

Alan and Rita are in their 60s. They have done relatively well during their lifetime and have built up a variety of assets including investment bonds, unit trusts and various deposit accounts through both banks and building societies.

They have two children who are more than self-sufficient and each of whom has married and had children of their own.

Alan and Rita would like to start passing money down the family line, in part to reduce their potential Inheritance Tax liability and in part to reduce the amount they would have to pay personally if they needed residential long term care.

They could simply gift money to their children but they don’t need it so while it would solve a short-term problem for Alan and Rita, it could simply create a problem for their children in the long-run for the exact same reasons.

So, how about by-passing their children and giving the money to their grandchildren? Good idea in theory, but the grandchildren range in ages from 3 to 7 so a direct gift would also give them control which may not be a problem now but could be when they are 18 and suddenly realise they have significant amounts of cash and little financial savvy.

The answer – a simple Trust that has the grandchildren as the beneficiaries of the money but, until they reach a certain age (25 perhaps), control of the money rests in the hands of Trustees who can be Alan and Rita’s children. The Trustees cannot give the money to anyone other than the beneficiaries but they can ensure that the money is not immediately blown on some outlandish car (or other whim) as soon as the grandchild attains age 18.

The Trust could be funded by gifting existing assets (the Investment Bonds, for example) or by cash. However, given the relatively long-term nature before the grandchildren reach the age at which they can access the money, a cash holding may not be appropriate and other asset-backed investments could be considered.

Trusts are available “off the shelf” or can be drawn up by a Solicitor to reflect the particular situation.

All too often, Trusts are seen as tools of the rich, unavailable to the masses. But, as we continue to build up wealth as a population and wish to ensure our nearest and dearest are the ones who will reap the greatest benefit, we need to consider them more widely as fundamental planning vehicles.

For an initial discussion on how Trusts may benefit you and yours, please call us on 033 241 3350.

 

This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned about the content hereof and any such action or inaction. Professional advice is necessary for every case.

Richmond House Wealth Management Limited is registered in England (No 01842995). Registered Address: Premier House, Argyle Way, Stevenage, Hertfordshire, SG1 2AD. Richmond House Wealth Management Limited is authorised and regulated by the Financial Conduct Authority (FCA Reg No 144885).  FCA does not regulate trust and will planning.