16 June 2020
Many grandparents now choose to make a gift to their grandchildren directly. There are several reasons why this is happening so frequently:
1. Young people are finding it difficult to get on the property market without help from their families. Some grandparents are leaving their grandchildren money for a deposit on a property purchase.
2. Many younger people now have huge student loans that they may struggle to pay off in the long term without help.
3. People may also choose to divide the inheritance between different generations because of tax. Inheritance tax is paid on a person’s estate when they pass away. It is often efficient to make the best use of the inheritance tax exemptions available to different members of the family.
There are different ways to make a gift to your grandchildren under your Will:
Making a Legacy
· You can say that you wish to leave a set amount of money to a grandchild.
· You can say that you wish to leave an equal sum to all your grandchildren (i.e. £5,000 each).
Gifting a Percentage of your Estate
You could leave a percentage of the estate to a grandchild/ your grandchildren. This option has the advantage that it doesn’t matter whether your Estate increases or decreases towards the end of your life. The people receiving an inheritance under your Will will benefit in the same proportions.
Consider:
You make your Will in 2003. You leave 45% to your son, 45% to your daughter and 10% equally between your grandchildren. Your Estate is worth £500,000.
Scenario A: You later inherit from your sister. Your Estate is now worth an additional £200,000. When you die your Estate of £700,000 is divided between the beneficiaries of your Will.
Scenario B: Your sister survives you (so you do not inherit from her). You have a serious stroke and move into residential care. On your death, your Estate of £100,000 is divided between your beneficiaries. They will receive different amounts from Scenario A, but the same proportions.
You should also decide how and to whom the inheritance should be paid.
Clearly gifts cannot be paid to very young children. You can pay the inheritance to a child once they have reached a particular age, usually 21 or 25. You can choose people to act as Trustees who will invest the funds on their behalf until this point.
It is not ideal to have small gifts held on Trust during a child’s minority and paid to them once they reach adulthood. This burdens the Trustees with managing the funds for long periods. It is unlikely that they will get a good return on the investment of such a small amount. In the case of legacies of say £500 it may be best to pay the gift to one of the child’s parents instead. Your lawyer can include a clause to this effect in the Will. Parents often have bank accounts open for their children already into which the inheritance could be paid.
In some cases, it may never be appropriate for a grandchild to receive and manage their own inheritance. This is particularly the case where they have drug or alcohol addictions, or a learning difficulty or mental health problems. In such circumstances their inheritance could be held on a Discretionary Trust or Vulnerable Person’s Trust. You choose Trustees to manage the inheritance and make payments to the beneficiary as and when it is helpful. You can leave instructions setting out how to make payments that you would approve of i.e. paying rent, university fees and paying for holidays.
If you would like assistance in making or updating your Will please contact our Wills, Trust and Probate lawyers based at our Bournemouth and Christchurch offices for a quote.
Please note, this is not legal advice. It is intended to provide information of general interest about current legal issues.
