Passing inheritance directly to grandchildren?

[CorvusPurpureus]

Apologies - I know the person concerned should just see a FA or lawyer, but they keep asking me questions I can't answer!

Imagine you are a woman in your 70s, fairly recently widowed & financially well off. You are in good health both physically & mentally, but might sell up the large family home soon so as to move to somewhere more manageable.

You have always assumed that your estate will pass equally to your 2dc, who are in their early 50s/late 40s. There are equal numbers of dgc in each dc's family.

Recently, it has occurred to you that (coming from a long lived family, having been a young mum, & feeling in fine fettle) that your dc are unlikely to inherit from you before their 60s or 70s - both of them are financially comfortable.

If you do keep going well into your 80s or 90s, however, your currently teenage/20 something dgc are going to be aged between 30-50, may very well be buying homes, starting families or funding schooling or HE for your potential dggc.

You are considering skipping a generation & splitting your will between the dgc.

In theory this means the estate goes 6 ways, not 2.

Both middle aged dc are fine with this, & agree it sounds completely reasonable.

Any pitfalls?

For disclosure I'm one of the adult dc. Only problem I can see is dm dying earlier than she expects to, at which point at least some of the dgc would still be teenagers & might not manage their inheritance sensibly. But it could be left in trust until they're a bit older?

All advice gratefully received!

Of course dm may require elder care & that diminish the pot considerably, but that would be the same if dsib & I inherit.

We are both minded to bung any inheritance straight at our dc (dm's dgc) if the will stays as is, but none of us know if there are advantages/disadvantages to her just cutting out the middleman & changing her will now.

For now, keep the beneficiaries as the D.C rather than DGC.
Review in 7 or 10 years.

I'm totally against this. Your children will inherit from you. They will then inherit twice and you won't inherit at all.

If you want to give your inheritance to your children, that's up to you. You might decide to buy a holiday home that you can all spend time in, or you might spend it on travelling or whatever. It's not fair that children are bypassed like this.

my friend's FIL left a lot to his GC, £60K each. One spent it in a year (he was about 22/3) or rather his friends helped him spend it, he got into drugs and had a tough few years. One spent it over about 4 yrs (she was 18 when he died) by taking first-class flights and getting a boob job, the youngest, ironically, was about 15 and she still has it in her savings account for a house deposit (she was always the sensible one!).

In retrospect I think they all wish he'd set up some kind of trust rather than leave it in straight cash, they were really just too young to cope with it. The older two were just old enough to want to go on a spending spree and my friend and her dh couldn't do a think about it as they were over 18.

Been researching Will making and minor DG inheriting. There are a number of Trusts but the main one that seems to be used for minors is Discretionary Trusts which seem to be tax a lot. They are tax at 20% when set up; have a 10 year recurring tax of 6% and and exit tax of 6% - correct me if I'm wrong. Otherwise there is really just the ''Bare Trust'' where DG inherit at 18 years. The state seems to think 18 year olds are adults.

My parents always told us that their intention was to leave their money to their GC, as 'we were ok'!

It's worked out well. Upon my father's death, he left a bequest to each GC, and then my mother's estate was divided between them equally (fortunately 2 GC from either child!) when they were in their 20's. My DC have used the money as a deposit on their homes.

We never kept this quiet from them as they were growing up, although we talked in general terms rather than specific amounts. We also made sure that we drummed into them how hard their GP had worked, and the sacrifices they had made, for them to have these funds. My sibling's DC are a little younger, and their share has been invested until they are old enough to use it properly!

Tichy in my case, if Gran had left the money to Mum it would have been taxed at 40%, sat in my parents account for a number of years, then taxed again at 40% on being passed to me.

@InTheLongGrass

Tichy in my case, if Gran had left the money to Mum it would have been taxed at 40%, sat in my parents account for a number of years, then taxed again at 40% on being passed to me.

The amount left by your Gran would have been taxed at the same rate nomatter who she left it to, although there may be on-going tax implications if a profit was made from any investment of the funds, but again, that would apply to whoever was the beneficiary.

Any tax liability above the inheritance tax threshold is the responsibility of the estate of the deceased, not the beneficiary.

And since the money came straight to me, it didnt form part of my parents estate. So it was taxed as part of one estate, not 2 estates.

The amount left by your Gran would have been taxed at the same rate nomatter who she left it to, although there may be on-going tax implications if a profit was made from any investment of the funds, but again, that would apply to whoever was the beneficiary

Any tax liability above the inheritance tax threshold is the responsibility of the estate of the deceased, not the beneficiary

Yes, but the point is that Inthelonggrass’s inheritance skipped one generation of being taxed: it wasn’t taxed as part of her parents’ estate before reaching her.

@InTheLongGrass

Tichy in my case, if Gran had left the money to Mum it would have been taxed at 40%, sat in my parents account for a number of years, then taxed again at 40% on being passed to me.

Oh I see what you mean!

Although if you l eave to your children and when you die they then decide they have enough money and vary the will by agreement to go to their children then you also avoid the double inheritance tax as long as the parents survive 7 years, as I mentioned above. That tends in my view to be the safest thing.

@Xenia

Although if you l eave to your children and when you die they then decide they have enough money and vary the will by agreement to go to their children then you also avoid the double inheritance tax as long as the parents survive 7 years, as I mentioned above. That tends in my view to be the safest thing.

If the parents do a deed of variation that sits outside the 7 year rule.

“ Recently, it has occurred to you that (coming from a long lived family, having been a young mum, & feeling in fine fettle) that your dc are unlikely to inherit from you before their 60s or 70s - both of them are financially comfortable.”

No. Just leave it to the children who can in turn leave it to their children.

Nobody knows what tomorrow brings.

if it really is a substantial sum, then why not establish a trust with both the children and gc as beneficiaries and instructions to trustees that might avoid porsche buying / general frittering?

Would this be an option ?
I believe a parent can "gift" children & grand children a certain amount per year
This person could live to 90, 100 depending on their health
Would this be a way of avoiding tax ?

You can gift £3000 per beneficiary a year to reduce your IHT. You are taxed on the amount of the estate remaining above the non taxable sum. You can give as much as you want to reduce IHT if you live 7 years afterwards. We are giving substantial sums to each DC. One has hers already. So our estate is already reduced by £1/4m.

We also bought property when they were little. But the houses were in our names. They now don’t want to live where the houses are. So one has been sold to give the sum above. Unfortunately CGT was payable. But we have had an income from it for years. It might have been better to invest wholly in a Trust for DC. However we have done that too. So if inheritance skips a generation, always think about trusts and CGT liability. It’s never easy! However I think everyone should agree that if inheritance skips a generation, no one is left poor who could have done with the money. That’s a sure fire recipe for falling out!

If your children are still minors and will be for a bit and your mother is only 70 ish, why doesn't she stick to leaving it to you and your sibling for now with a view to changing it in a few years' time.

If timings work against you and you have to deal with a probate before any will change, you can always do a deed of variation in favour of your children then.

Actually that's something we were told - update your Will regularly - although I appreciate that it is the lawyer's interests to advise that!

Having re-written ours a couple of yearss ago, I suspect the next time we will do so will be if/when GC arrive.

Circumstances change though, don’t they. DC get older and don’t need guardians. They can manage money that they are left. They earn their own money and make adult decisions. Very different to being young DC and it’s different when parents might wish to consider grandchildren. Needs change too. Care is expensive! It’s not necessarily a lawyer benefit - it’s to protect you and your family. Especially organising an estate to minimise IHT .

My main reason to leave to children not grandchildren is I have 5 children and goodness knows how many children they have or will have so it would be hard to be fair - whereas in the case here each child has 2 children only so the amount going down each child's "line" is the same in this example but would not be in mine. My second reason is it get a bit complicated. Also I am giving everything away earlier anyway. My daughter and I are just 22 years apart. I am giving each child a lump sum when they buy a first property. That will then just leave me with equity in the house and ideally I will give all that away more than 7 year before I die (which hopefully will not be for about 25 years + and who knows what inheritance tax will be in force by then.

Most very rich people tend to try to ensure no one inherits and has control over money unless 25 or older or even 30 or older to make sure they are a bit older and wiser.

Yes. 25 or 30 is now standard. Having just a house doesn’t help if there’s a need for instant money. Also if you give away a house you wish to live in to DC, you have to pay the market rent don’t you? So we will retain a property and our portfolio to meet our needs but give away excess early. Doubt if I have 25 years though!

My DM died this year. Left equally to DSis and me. We are both in our 60s and don't need it so will be varying the will to pass it to our DC. The DGC Are all early 20s and all very responsible. It will be of far more use to them than us.

As a general rule I would leave to children as Xenia says but each family different. My parents were teachers so worked hard but not hugely wealthy and know the inheritances that arrived just as I started university enabled them to put us 3 through university and also to retire early from gruelling jobs.

Two of the 3 “grandchildren” now actually earn significantly more than our parents ever did so would have been utterly wrong thing to skip a generation in our family anyway.

My grandmother did this (with the blessing of her children who all owned substantial homes) and I am so grateful to her and them.

However, she only changed her will to do this once all her grandchildren were adults.

Prior to that she did however gift a fair amount to her grandchildren in her lifetime (eg paying school fee/ university fees/house deposits - different for each child but amounting to a similar level of support);

Give to dcs so that if the gdc are still to young their parents can guard the money.

You never really know what will happen, the adults might actually need this money when the time comes for one reason or another and may resent it going to the kids.

My husband and I have talked of this as his parents have mentioned changing their will to leave money to ours dcs as well. Our dcs are still children and so if their dgp were to pass before they were sensible adults that money could be squandered. Another point is we want to be able to help our children and having an inheritance from my in laws which will allow us to pay or significantly decrease our mortgage will allow us to be the ones to help our children.