Leaving gifts to children in your will

Outright gifts

An outright gift leaves assets to your children without restriction.

If the child is under 18, then they will not be able to give a valid receipt for the gift given until they reach 18 meaning that the legacy should be held by the executors of your will as trustees until this time.

The disadvantage of an outright gift is that it offers very little protection from the legacy being squandered once received at the age of 18.

Whilst there are some inheritance tax advantages of leaving money to children in this way, most parents feel that 18 is too young for their children to receive what might be a substantial lump sum, and the money may not be put to good use.

Age contingent gifts

Another option is to make the gift to your children contingent on them attaining a certain age, usually either 21 or 25 (depending on preference).

The idea here is that if you die before your children reach the age at which they become entitled, the executors of your will (as trustees) will hold what you leave for your children until they reach the required age.

The trustees can distribute money to the children before they attain the specified age at their discretion, but when the child attains the required age, they inherit the remainder of the balance of their share outright.

The advantage of leaving gifts for children in this way is that you defer what your child receives until they reach an age where they are hopefully less likely to squander it.

A disadvantage, however, is that because the money has to be paid over at a specified age, there is no scope for retaining the money in the trust past this time to provide protection if there is a good reason for keeping the money in a trust structure.

Discretionary trusts

A discretionary trust gives your trustees the absolute discretion and flexibility to apply trust money to a class of beneficiaries.

Here the trustees have the power to forward the capital and income from the trust at their entire discretion to any one or more of the beneficiaries (which would include your children and your other descendants) as and when they feel it appropriate. The main advantage of a discretionary trust is that it protects the assets held within the trust from early distribution to the children. It also allows the trustees to give your children the assets held in the trust when they think it appropriate to do so rather than giving them outright, which could result in assets being squandered or falling into the hands of a third party.

The other benefit is that because a discretionary trust is extremely flexible, it might help you successfully pass your assets to subsequent generations of your family in an inheritance tax efficient way.

With this option, a letter of wishes can be prepared giving your trustees some guidance on how to administer the trust. For example, you could give guidance on when you would like your children to inherit various assets and which assets you would like them to specifically have.

For more information, please contact Brachers’ private client team.

Downloadable Files

Download the file on Leaving gifts to children in your will fact sheet

Download the file on Trust Management Services fact sheet

This content is correct at time of publication