Setting Up Bereaved Minor Trusts & 18–25 Trusts

Protecting Your Children’s Inheritance While Managing Tax

Planning for the future is never easy especially when young children are involved. A well-drafted Will can ensure your wealth passes safely to your children while giving you control over when they receive it. Two specialist options are the Bereaved Minor Trust and the 18–25 Trust. These trusts are designed to protect the inheritance of bereaved minors, specifically children who have lost a parent, by managing and safeguarding their assets until they reach a particular age.

What Are These Trusts?

A Will that gifts money to a child, but delays when they inherit, will usually create one of these trust types:

Bereaved Minor Trust : used when a child inherits on or before age 18.
18–25 Trust : used when inheritance is delayed beyond 18 but not later than age 25.

Both are only available to parents or step-parents making provision for their own children. Only trusts that meet certain conditions qualify for the specific tax treatment and protections offered by Bereaved Minor Trusts and 18–25 Trusts. These conditions must be satisfied for the trust to be valid and to receive the intended benefit.

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The trust period lasts until the beneficiary reaches the specified age, at which point they become absolutely entitled to the trust assets.

One of the main benefits of these trusts is the ability to control when and how the inheritance is accessed. They give you peace of mind that funds are professionally managed until your child is mature enough to take control.

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Why Families Choose These Trusts

Protection for Young Beneficiaries : The trust fund and trust assets are safeguarded until your chosen age, providing key benefits for families seeking to protect inheritance for minors.
Favourable Inheritance-Tax Treatment : Minimal or no IHT charges compared with many other trust types, offering tax benefits for your estate.
Control & Flexibility : Trustees can manage trust assets and investments, release funds for education or living costs, and protect capital from misuse, ensuring the trust fund is used according to your wishes.
Efficient Tax Planning : Opportunities to mitigate Capital Gains Tax (CGT) on asset transfers or sales, maximizing the benefits of your trust fund.

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Expert Inheritance Tax Planning and Solutions

Key Tax Considerations

Capital Gains Tax

Annual Allowance: Half the individual allowance (currently £3,000) for capital gains tax purposes.
Rates: 28% on residential property gains, 20% on other assets.
Planning Opportunity: Relief may apply when transferring or selling property occupied by a beneficiary, but note that gifts into the trust may have capital gains tax implications.

Income Tax

Trust Rate: 45% on gross non-dividend income above £1,000 (i.e., the trust rate applies to gross income exceeding the threshold), and 39.35% on dividends.

Standard Rate Band: The first £1,000 of gross income is taxed at lower rates (20% / 8.75%). Trustees pay the income tax due on trust income.

Inheritance Tax

Bereaved Minor Trust: Not a relevant property trust, so there are no 10-year or exit charges, even if the trust fund exceeds the nil-rate band. These trusts are not subject to relevant property charges regardless of the value of the trust fund.
18–25 Trust: If the trust exceeds the nil-rate band, exit charges may be payable on payments made after age 18. For example, a small “exit” charge (fraction of 6%) is payabl 1.8% at age 21, 4.2% at age 25.

A chargeable event occurs at each 10-year anniversary date for relevant property trusts, and the value of the trust is assessed for inheritance tax purposes. The amount of tax paid depends on the value of the trust fund at the relevant date.

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Special Protection for Vulnerable Children

If your child is disabled or otherwise vulnerable, the trustees can elect for special tax treatment so the trust pays no more tax than the child would have paid directly. The trust property can be used for the child’s maintenance, education, and other expenses, ensuring the child’s needs are met until adulthood. These trusts are treated differently for tax purposes to ensure the child is not disadvantaged.

Why Work With HeirPlan

Setting up these trusts demands precise drafting and careful tax planning. Our estate-planning experts will:

Review your family’s circumstances and Will structure, ensuring the person involved is fully supported.
Draft trust provisions to maximise tax advantages.
Guide trustees on ongoing administration and HMRC compliance.

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Give your loved ones the financial security they deserve while maintaining control over when they inherit.

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