A beneficiary of a will is a person or charity who is due to receive a gift or share of an estate (money, property and possessions) when someone dies.
A will only come into effect when that person dies, therefore until that time, the beneficiary has no entitlement to the estate. A will can be changed at any time before a person’s death, as long as they have the required testament capacity.
Can a minor be a beneficiary in a will?
A beneficiary of an estate can be a minor; however, the minor is not entitled to receive the gift or share of the estate until they reach the age of 18 years old. This is because a minor is deemed not to have the capacity to accept a gift until they reach the age of majority and gain full legal capacity. Until a beneficiary is 18 years old, the funds or assets due to them will be held in trust by trustees named in the will.
The testator (the person making the will), especially if a parent to the minor, can include a letter of wishes to sit alongside their will. This letter of wishes can express how the funds should be invested or
used for the benefit of the minor whilst held in trust. It’s possible in certain circumstances for the inheritance to be paid to the parent of the minor but is dependent on the terms of the will and/or statute.
When drafting a will, parents must consider if they will have any further children in the future. For example, it’s a good idea to leave a gift or share of a residuary estate to ‘my children' rather than including names if a parent is considering having more children in the future. This will avoid having to change a will later. Additionally, if a person wishes to include stepchildren, they must refer to them in the will as they would have no automatic entitlement if the will simply referred to ‘my children.
What is trust?
A trust is a legal arrangement in which one party (a trustee or trustees) holds property on behalf of another (a beneficiary). Therefore, if a minor is not 18 at the time when they are due to inherit from a will then the trustee(s) will hold the funds in trust until they reach majority.
It’s very important that the testator (the person making the will) chooses a trustee they fully trust to manage the trust fund on behalf of the beneficiary. Many choose to appoint the guardians for their child as the trustees, as they may have the best understanding of the child’s needs and requirements. It’s also important that chosen trustees know the burden imposed upon them.
It is possible within a will to stipulate an age higher than 18 years old, such as aged 21 or 25. However, caution should be given when including ages higher than this due to the onus on the trustee(s) in managing these funds for many years and the potential of the fees for management of the trust being proportionate to the funds held in the trust, particularly if a trust corporation or professional trustee is appointed.
Bare trust v contingency trust
A gift to a beneficiary under the age of 18 will be held in a bare trust until they reach 18, with the beneficiary obtaining a vested interest when the testator dies. Therefore, if the beneficiary survives the testator but then passes away before reaching 18, the inheritance that they would have received will then pass in accordance with the beneficiary’s estate. The beneficiary will be entitled to income from the trust due to the vested interest and taxed personally.
However, if there is an age stipulated in the will, such as 21 or 25, the beneficiary’s entitlement is contingent on them reaching that age. This is commonly referred to as a contingency trust. If the beneficiary passes away before reaching the contingency, then the gift will fail and will instead pass to an alternative beneficiary or into the residue of the original testator. The entitlement to income is subject to conditions, such as the testator being a parent or stepparent and the will expressing such entitlement and will be taxed accordingly.
Do you need to set up a trust for minors in advance?
You do not need to set up a trust for a minor before creating a will, however, it of course can be done. If a will creates a trust for a minor, then two trustees must be appointed by law.
Generally, a will includes the STEP Standard Provisions which allows for trustees to use powers of advancement and maintenance for minor beneficiaries before they are entitled to their inheritance together with powers of investment of funds.
If the STEP Standard Provisions are not included, then the statutory powers under Section 31 and 32 of the Trustee Act 1925 will apply. This allows for the needs of the minor to be met throughout the period in which the funds are held in the trust. If the age at which the minor is entitled to the gift or share of the estate is higher than 18, the minor automatically become entitled to the income when they reach 18.