Deciding whether or not to leave money and/or gifts to grandchildren and if so, how much and how to do it, is a very common question during estate planning. There is certainly no problem in making a gift to grandchildren in your Will but there are a number of choices that need to be made, particularly where the grandchildren are young. However, some of the choices are also relevant to grandchildren who are teenagers and young adults.
The first issue that always arises is to consider whether the grandchild is under the age of 18 years. If they are still a minor child, then generally grandparents are not going to want the grandchild to receive and access the money, possibly not until they are more mature.
If the grandchild is over the age of 18 years, then the choice to give the grandchild the money directly is obviously easier. But the question still arises as to when a grandparent considers that their grandchild is mature enough to receive their inheritance. As the Will-maker, you can decide at what age your grandchildren will have access to their inheritance, although there are some issues with that dealt with below.
The options generally are to:
Each of these options have some benefits and some disadvantages. We address these in more detail below.
The simple answer is yes.
But, although it seems fairly straightforward, there are some issues to consider:
Although this is a simple provision, there are the issues of dealing with the funds and also a common wish of grandparents that the grandchild only receive the money when they are more mature – and that is often seen as being older than just 18 years.
By virtue of an old English case that still applies today, even though you might provide that the grandchild not receive the funds until the age of 25 years, the grandchild may still be able to call it at the age of 18 years. Using a trust (see below) can be beneficial in limiting that happening.
This depends on the amount of the inheritance that might be provided to a grandchild. If it is a modest amount, it may not be worthwhile for your executor to hold the inheritance on trust until the grandchild reaches the age of 18 years.
So, if it is modest, a very simple arrangement is to allow the executor to give the money to the parent of the grandchild so that the parent takes responsibility to provide those funds to their child once the child attains the age of 18 years.
The concerns that a grandparent may have using this method is whether their child does actually provide those funds to their own child (the grandchild) upon attaining 18 years. It also relies upon a moral trust that the grandchild’s parents will act properly in managing those funds, ensuring they keep those funds clearly separated from their own money.
Where the grandchild is near the age of 18 years, and the intention is that the grandchild receive the money at that age, this type of provision is reasonable. But where the amount of money involved is large and the child is quite young, the concern may be that the parent mixes the inheritance with their own money and by the time the grandchild reaches 18 years, the amount might be "lost" or at the least, significantly depleted.
Another concern would be that the parent goes through a marital breakdown with the issue that the parent would need to prove that the funds were an inheritance to be held for the grandchild and not a gift to the parent.
A further concern could be that the parent falls upon difficult financial times and either uses the inheritance for their own purposes (possibly with the intent to re-pay prior to the grandchild turning 18) or unwittingly allows the inheritance to be exposed to claims by creditors.
In summary, gifting the inheritance to the parent of the grandchild can work but there are a number of potential drawbacks.
Where there are multiple grandchildren and where the amount set aside for the grandchildren is a reasonable sum, you might consider a discretionary trust under your Will.
You do need to carefully determine who the trustee should be. This is particularly important if the grandchildren are very young as the trustee may have a long period in which to manage the trust.
You may want to give some guidelines to the trustee as to how you expect the trustee to act including:
Your guidelines would not be binding on the trustee but it would at least give the trustee an understanding of your wishes as to when and how your grandchildren should benefit from the trust monies.
A testamentary trust for grandchildren is a very effective way of protecting the money for their future benefit whilst providing plenty of flexibility.
The use of a testamentary trust for grandchildren certainly has a lot of benefits and flexibility. You may want to consider putting some parameters around the trust such as having it only available to pay for the education of the grandchildren?
We have frequently been asked this question which really borders upon considering the moral aspects as compared to the legal aspects. Morally, there is a lot to be said for grandparents supporting the education of their grandchildren. Legally, you do need to be aware of the potential issues in that regard as well as the tax consequences.
Looking from the moral perspective, the provision of funds to pay for education is commendable although how that applies in a practical sense needs to be considered.
From a legal perspective, depending on the size of the trust and the number of grandchildren, the operation of the trust may involve considerable time being spent by the trustee on certain tasks including:
As a parent, all these issues are a day-to-day task of bringing up children. For someone else to do this, as trustee for the grandchildren can be quite an imposition, particularly if the appointed trustee is not part of the whole family. And in that case, should the trustee be paid for doing that work?
A trust for the education of grandchildren is a very worthwhile cause but there does need to be careful thought given to how it should work and the practical implications of operating it.
Many grandparents will leave money or gifts to their grandchildren, either in their Will or via a testamentary trust. You do, however, need to consider a number of issues (or potential issues) to ensure that your intentions are actually able to be realised in a practical and cost-effective manner.
If you’re considering making an allocation for your grandchildren but would like guidance and advice on the best options for your specific circumstances, please contact our estate planning team to arrange a meeting.
For more information or to arrange a consultation with a lawyer, you can call or email us.
This article is of a general nature and should not be relied upon as legal advice. If you require further information, advice or assistance for your specific circumstances, please contact E&A Lawyers.
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