Latecomers to Grandparenthood

[helfordpirate]

It has occurred to me that one might set up two bare trusts for each grandchild. One of which could be "forgotten" by the parents until the grandchild has sensibly spent the first and is years older. Is this possible under the current legislation?

The trustees have a duty in law to inform the beneficiary when they reach 18 and a duty to provide information on the assets in the trust. While there are no "trust police" who go round checking this stuff, if your grandchild falls in with a bolshy law student at uni they could sue the trustees (their parents presumably). It just isn't a sensible path to plan for.

Whilst this approach could work, one's children would need to manage the investments and tax if one has passed away in the interim, so maybe they should be the people to set the second trusts up but funded by a gift from the grandparents?

If you do this then the trust would be a parental settlement, and the income would be taxed to the parent. Anyway it gains nothing? The parents, perhaps along with the settlor while alive, would typically be the trustees. So they have to manage the investments anyway.

[scrumpyjack]

All of my bare trusts have been set up just by putting investments in the name of the trustee (a/c initials of child). There were no trust deeds, but simply a letter confirming the gift. This was done before the Trust Registration System hooha was set up. When doing this with HL, they require confirmation that the amounts are unconditional gifts. It may be that when the beneficiaries reach 18 they will insist on a transfer into the child's name directly, but this has never been the case previously. One could of course not involve a broker and just have certificated shareholdings, registered as trustee (a/c initials of child). This was the case with my children decades ago and grandchildren more recently. It might reduce the risk of forced disclosure to the child!

I have looked at requirements and, whilst it is clearly set out that the beneficiary becomes 'absolutely entitled' to the bare trust assets at age 18, I can't see anywhere a specific requirement to tell them about the assets

I can't see anything to stop one setting up as many 'bare trusts' as you like for the same child. There is no requirement, AFAIAA, for a 'Trust Deed'. The act of giving assets to a minor creates an express bare trust. You can give further assets without creating a second registration or amending the first one.

The Trust Registration Service does not require details of the assets or value of the bare trust created by the act of giving, but simply the details of the relevant individuals and the date the trust was created (by the gift being made).

ps none of my bare trusts have incurred the parental settlement problem

[scrumpyjack]

I see HelfordPirate says the trustees have a duty in law to inform the child of the existence of the bare trust.
I have to say that in every case in our family the children have been sensible and it was probably mentioned to them them that there were some trust assets coming to them. But it has never been a problem with the child insisting on immediate access etc etc, so assets have remained in the names of the trustees for several years without problem. This does give some protection against sudden rash spending by the child. If they child does get bolshie, insist on immediate access etc, well you probably have a problem child anyway!

[kempiejon]

I'm probably biased as I don't have any offspring nor have I received or expect a significant bequest. Whenever one of these threads comes up the idea of bequests to youngsters turns inevitably to whether they can't be trusted with the cash. If you want to leave money to kids just let them have it and do with as they wish, I expect they'd be delighted though upset at your death. If you're worried they will fritter it away don't give it to them. It's a sad Indictment to parenting if you don't think the kids will have been equipped to deal with it. As I say, I don't have kids but was a wilful 18 year old and might have frittered any inheritance, so probably for the best I didn't get one.

[scrumpyjack]

Kids are likely to be more mature and make more considered decisions when they are 21 and have been at Uni for 3 years, than when they are fresh out of school at 18. So doing what you can to protect them from themselves is IMO sensible but ultimately of course they have to take responsibility themselves.

[helfordpirate]

I have looked at requirements and, whilst it is clearly set out that the beneficiary becomes 'absolutely entitled' to the bare trust assets at age 18, I can't see anywhere a specific requirement to tell them about the assets

The trustees have a duty of care to the beneficiary (where the beneficiary is fixed) - this includes reasonable disclosure.
Here is a discussion on some of the legal issues...
https://www.thegazette.co.uk/all-notices/content/103984
and a less good source https://www.moneymarketing.co.uk/analys ... ficiaries/

Also, the trust ends when the beneficiary reaches 18. Although the trustees can continue to hold legal title, they can only act on the instruction of the beneficiary i.e. it's like a nominee account. The trustees have an obligation to seek the instruction of the beneficiary as to administering the trust funds. If they don't, they leave themselves open to claims they have not acted in the beneficiaries best interest - as they have not sought to ask what that interest is (and yes that might be spending it all on a skiing holiday or worse!)

I can't see anything to stop one setting up as many 'bare trusts' as you like for the same child. There is no requirement, AFAIAA, for a 'Trust Deed'. The act of giving assets to a minor creates an express bare trust. You can give further assets without creating a second registration or amending the first one.

Indeed you can settle as many trusts as you want. And you don't need a written document - in which case the statutory terms of trusts are applied. The act of "giving" only creates an "express trust" if the "three certainties" are met - there is clear intention to create a trust, the property of the trust is clear and the beneficiary is well defined (for a bare trust). So opening a bare trust account with HL or AJB will meet these requirements.

As I said before, there is nobody who is going to police this - certainly not HMRC. So again it is a question of trust between the settlor and the beneficiary and the trustees.

Personally if my father asked me to be a trustee of a bare trust for my son but asked me not to tell my son that it existed and perhaps even purposely hide it, I would decline. Not because there was any real legal risk but just because I would not want to be not wholly truthful with my son.

Of course different families work in different ways

[Howard]

As I said before, there is nobody who is going to police this - certainly not HMRC. So again it is a question of trust between the settlor and the beneficiary and the trustees.

Personally if my father asked me to be a trustee of a bare trust for my son but asked me not to tell my son that it existed and perhaps even purposely hide it, I would decline. Not because there was any real legal risk but just because I would not want to be not wholly truthful with my son.

Of course different families work in different ways

I can see your point, but I don’t think there is any dishonesty being suggested, just gradually letting a young person know that they have access to a further generous sum available to them as they become more mature.

The choice, facing the generous grandparents in the OP, is whether to set up a six figure blind trust for the child which with sensible investment will likely more than double over the years. This puts the parent in the position of having to inform an 18 year old who suddenly, on his or her birthday, has free access to more than a quarter of a million cash.

It’s a fun problem for successful investors to wrestle with! Especially as they may have passed away before the event.

regards

Howard

[Gerry557]

I knew a family that had put some money "to one side" for the grandchildren. They were told that there was some money for when they were older. It wasn't a great amount probably a few £k

As grandma aged mother took over control and was the deciding factor especially when grandma passed.

As the child became an adult they asked for access and a total. They were never given an exact number just indications that it wasn't a small amount.

Assistance for a car to work wasn't good enough, the list went on even a house purchase and starting a family apparently didn't qualify.

I thought there might be something untoward going on but they were playing the long game as the couple went through a divorce.

[kempiejon]

Kids are likely to be more mature and make more considered decisions when they are 21 and have been at Uni for 3 years, than when they are fresh out of school at 18. So doing what you can to protect them from themselves is IMO sensible but ultimately of course they have to take responsibility themselves.

Doing what you can to protect them from themselves is bringing them up properly, educating and parenting. Wouldn't they be even more and properly mature and considered at 25 or 26? and most kids don't go to university. I think I understood that a trust is obliged to give the kids the money at 18 if they want it so waiting for them to get properly grown up is moot.

[helfordpirate]

but I don’t think there is any dishonesty being suggested, just gradually letting a young person know that they have access to a further generous sum available to them as they become more mature.

We will have to disagree!

It is THEIR MONEY!! "gradually letting a young person know that they have access to..." is withholding their money from them. Not an outright lie or anything but dishonest IMHO.

I really think a Bare Trust is not for you (and others here) if you cannot accept that the beneficiary owns it outright at 18 and the trustees need to tell them. The trustees should be telling them in advance and trying to educate them and mentor them to make wise decisions - not hiding the child's own money from them until they feel the time is right. If that's what you really want, you should take on the burden of a discretionary trust.

[scrumpyjack]

but I don’t think there is any dishonesty being suggested, just gradually letting a young person know that they have access to a further generous sum available to them as they become more mature.

We will have to disagree!

It is THEIR MONEY!! "gradually letting a young person know that they have access to..." is withholding their money from them. Not an outright lie or anything but dishonest IMHO.

I really think a Bare Trust is not for you (and others here) if you cannot accept that the beneficiary owns it outright at 18 and the trustees need to tell them. The trustees should be telling them in advance and trying to educate them and mentor them to make wise decisions - not hiding the child's own money from them until they feel the time is right. If that's what you really want, you should take on the burden of a discretionary trust.

No I do accept they own it outright, but at 18 I suggested they just leave it be, draw the dividends out to support them at Uni, and use the funds later on as they see fit, but probably to help buy a property. That is what they all did and it worked out fine. The way you present it, you seem to think one should pay £250k into their bank account at 18 and say 'do what you like with it'. Here is the Ferrari brochure. It really isn't as black and white as you paint it. In practice they were all very happy to be advised on what to do and what not to do, and to agree they really didn't know much about money.

[genou]

you seem to think one should pay £250k into their bank account at 18 and say 'do what you like with it'.

That's how a bare trust works. Clearly you would be well advised to have acclimatised the beneficiaries to the idea that they will have serious money, and that they should consider what they want to do with it, so that they want to be responsible with it. But if they don't, it is theirs to squander as they please. That's how gifts work.

If you struggle with the idea that it is their money, as helfordpirate says your option is a discretionary trust. Be prepared for the tax disadvantages of one of those.

[scrumpyjack]

I have no problem with the concept that it is their money but giving them advice and encouraging them towards a certain course of action in no way conflicts with that.

[kempiejon]

I have no problem with the concept that it is their money but giving them advice and encouraging them towards a certain course of action in no way conflicts with that.

have looked at requirements and, whilst it is clearly set out that the beneficiary becomes 'absolutely entitled' to the bare trust assets at age 18, I can't see anywhere a specific requirement to tell them about the assets

Does feel a bit like you want some control over their money. Perhaps it's because you're alive? By putting the money in trust for beneficiaries stops it being your money and when they're 18 it's their choice. You do have to tell them it's theirs to do wit as they will as was cleared up earlier.

[Wuffle]

The odds on the kid being financially irresponsible look about the same as the elder family members being fairly damaged control freaks.
Just by eye from afar.

W

[Howard]

but I don’t think there is any dishonesty being suggested, just gradually letting a young person know that they have access to a further generous sum available to them as they become more mature.

We will have to disagree!

It is THEIR MONEY!! "gradually letting a young person know that they have access to..." is withholding their money from them. Not an outright lie or anything but dishonest IMHO.

I really think a Bare Trust is not for you (and others here) if you cannot accept that the beneficiary owns it outright at 18 and the trustees need to tell them. The trustees should be telling them in advance and trying to educate them and mentor them to make wise decisions - not hiding the child's own money from them until they feel the time is right. If that's what you really want, you should take on the burden of a discretionary trust.

Could I gently suggest that, whilst I respect your opinion, it’s not appropriate to give me advice without knowing my circumstances.

I was careful to address the OPs stated position and whilst I stated a view I did not give advice.

As it happens, I have set up bare trusts for grandchildren and as reported up thread am enjoying educating them about responsible management of money as they will be fortunate. I have made sure their parents are aware and involved because I believe that openness is a virtue.

Experience tells me you cannot be right in advocating setting up a discretionary trust for my family members. I have seen some of the problems this causes when people have tried to control events which will occcur after they have died. One major problem is deciding which person/organisation will control the grandchildren’s lives in future. This can have bad outcomes. I admit I cannot predict the future and I'm certain you can't predict my family's future .

regards

Howard

[Lootman]

you seem to think one should pay £250k into their bank account at 18 and say 'do what you like with it'.

That's how a bare trust works. Clearly you would be well advised to have acclimatised the beneficiaries to the idea that they will have serious money, and that they should consider what they want to do with it, so that they want to be responsible with it. But if they don't, it is theirs to squander as they please. That's how gifts work.

To me this all comes down to why the donor is doing this. If it is to make HT go away, then you might want to make large gifts early, to the extent that you can afford it. And accept that the kid will probably fritter much of it away - peer group pressure is huge at that age and they probably will.

If on the other hand the motive is to help them, then give amounts later that are relevant to what they need at the time e.g. buying a first home, having a first child, emigrating etc.

I gave only trivial amounts to my kids until they were in their mid-twenties and wanted to buy their first house. That was 8 years ago and so that is £300,000 or so that is now moot from an IHT perspective. So time to do it again, now that grandchildren are starting to arrive.

[genou]

To me this all comes down to why the donor is doing this. If it is to make HT go away, then you might want to make large gifts early, to the extent that you can afford it. And accept that the kid will probably fritter much of it away - peer group pressure is huge at that age and they probably will.

If on the other hand the motive is to help them, then give amounts later that are relevant to what they need at the time e.g. buying a first home, having a first child, emigrating etc.
I gave only trivial amounts to my kids until they were in their mid-twenties and wanted to buy their first house. That was 8 years ago and so that is £300,000 or so that is now moot from an IHT perspective. So time to do it again, now that grandchildren are starting to arrive.

Which is fine so far, but indelicately, how long have you got as a grandparent?

When my first child was born, the grandparents ranged from late sixties to early seventies. Two lived to see the older child turn 18, and only one for the younger. I have no guarantee of any grandchildren, but it's getting less likely, although I hope not out of the question, that I'll be around to see any turn 18.

I'll have the same choice as may parents/in-laws. Bare trust or discretionary. My children came in to chunky sums at 18, but they had always known it was there, and didn't go straight to the Lambo dealer ( the older one was always quite taken with Lambos - the school bus went past the dealer ). The idea of hiding the money because they were getting it young never occurred to anybody, and it strikes me as not only improper, but mad.

[Howard]

That's how a bare trust works. Clearly you would be well advised to have acclimatised the beneficiaries to the idea that they will have serious money, and that they should consider what they want to do with it, so that they want to be responsible with it. But if they don't, it is theirs to squander as they please. That's how gifts work.

To me this all comes down to why the donor is doing this. If it is to make HT go away, then you might want to make large gifts early, to the extent that you can afford it. And accept that the kid will probably fritter much of it away - peer group pressure is huge at that age and they probably will.

If on the other hand the motive is to help them, then give amounts later that are relevant to what they need at the time e.g. buying a first home, having a first child, emigrating etc.

I gave only trivial amounts to my kids until they were in their mid-twenties and wanted to buy their first house. That was 8 years ago and so that is £300,000 or so that is now moot from an IHT perspective. So time to do it again, now that grandchildren are starting to arrive.

I guess the discussion is relevant to slightly older successful investors (maybe like the OP) who may have given even larger amounts to their children over seven years ago and now, seeing how this has benefited their children, want to be generous to their grandchildren. IHT may not really be an issue because the amount of money going to children will be large enough for them to be relaxed about paying the tax (this issue may well have been discussed within a communicative family). I'm trying to avoid being pretentious, but having a well paid job and pension, some of us may have already paid seven figures in income tax during our lifetimes - so we are used to paying tax and, I suppose grateful for the society it supports. And in case others suggest this, possibly may also have given significant amounts to charities.

[Philosophical mode on] Maybe we are admitting that our grandchildren must see us as well off and would be disappointed in us if we weren't as generous in the after life (when they may need financial support), as we are now [off].

regards

Howard

[the0ni0nking]

One of the things my parents did was slightly annoying but still appreciated.

At 27, when I decided I was now set on my way in my career with hopefully the potential for my earnings to increase, I took the jump to buy my first property. I went through the entire process - mortgage offer, conveyancing etc and upon exchange of contracts my parents turned round and said (I paraphrase) - "Now that you're old enough and investing in something tangible, we'd like to give you £Xk as a contribution to the cost of purchase."

Now, I could have pocketed that money and kept my mortgage offer at them same amount - what I actually did, was turn round to the bank and said due to a change of circs, I no longer need a mortgage of £Yk, I now need £(Y-X)k. This caused more pain than I thought it would but ultimately the mortgage offer was amended.

At that time, both my parents were likely to survive 7+ years more and have now done that and then some!

My O/S mortgage now is pretty similar to what my mortgage when purchasing that first property was - but since then I've been fortunate to add a few more properties to the portfolio so my overall leverage is now <20%. That was in no way due to my financial expertise but rather a series of events/job moves that meant I moved around the country and overseas (largely at works expense) that facilitated very quick savings (and snowballing the mortgage debt away). I know a fair few of my school/university colleagues took different paths but at 27 my focus had become "how quickly can I get to retire" partly spurred on by may dad who retired at c50.

When I was permanently relocated for a couple of years (before I quit that job), I got a package to do that which covered all my purchasing costs as well as a % of my salary as a one-off "relocation payment". I made sure I left only after there was no obligation to repay any of it.

I only found out afterwards that my parents had done exactly the same thing for my brother (who is older than me).