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.

You need to check the legal stuff.

In my DH's family, inheritance was trapped in older generations who didn't need it.

When is DFil passed away, DH split any inheritance one for us, and one for each of the DCs. He was adamant that they would get the money when they needed it most.

One thing that DFil did when he was alive was to give us a cash Christmas gift - not huge £500 - 3000, depending on his investments. This reduced his estate and gave us money when we were a young family.

I'm actually against this too. I just think it's wrong. The money should be split/given directly to OP and her sister. If both then choose to give it to their 3 children immediately, then that's totally fine.

But skipping a generation. No. And you have no idea what could happen, between now and then.

as long as both children agree i don't see why it should be a problem. Either do one will now and change it once DGC come of age of say it will be held in trust until the children reach a certain age.

Contact a lawyer and they'll be able to advise you on how to set up a trust.

I don't see that the question is a simple '100% to DC' versus '100% to DGC'. Surely you can give a bit to both generations, if you wanted to.

Of course. Then grand children money can be put into a trust.

Yes, dm could absolutely leave everything to dsib & me, as her current will does - & we could do a deed of variation, which both of us would be minded to do (with caveats around youngest offspring with Porsche buying ambitions!).

However, as I understand it, dsib who is rather well off would probably then get whacked twice for IHT unless she passed it to her dc - IHT would come out of dm's estate (fine) but as dsib is also likely to leave a substantial amount, adding their 50% of dm's estate to their wealth would mean the money sat with dsib for a couple of decades then got hit again for IHT when dsib dies. She'd definitely prefer to avoid that.

It seems this could be avoided by a deed of variation?

It makes rather less odds to me, as whilst I'm in an ok position financially, I'm far less likely to be leaving assets anywhere near as substantial as dsib.

Anyway, I've told dm firmly that a) whatever she decides is fine by me, although I think it would be unwise to bequeath large lump sums directly to currently teenage dgc (my kids, basically - I'm the older sibling but have the younger children) without tying it up until they're older, just in case she gets hit by a bus tomorrow & Porsche buying immediately ensues & b) she definitely needs professional advice. Dsib has told her exactly the same.

Thanks all, you've raised some really helpful points.

Honestly you cannot micromanage dc after about 25 years old. We have had several porches. We had very decent cars at a young age. We are utterly responsible adults who like cars. A fairly old Porsche doesn’t depreciate much anyway. When are you going to trust dc? At 35, 40 or will you dictate from the grave?

Happened in our family. Used the money to extend the house - eternally grateful that grandparents had the foresight to do this, money came in my late 20s at the time we needed it most.

IHT gets paid first, then the estate distributed, so from that point of view if makes no difference whether it goes to you and your sibling, or direct to her grandchildrenin trust till age 40

This is how I understood it. My Ddad died last year and his estate is still being dealt with. He left a modest amount to each GC and the rest is split evenly between his DC. Anything that needed/needs paying for (funeral bill, solicitors fees, utility bills etc) although no IHT was due, is coming out of his estate before we get anything (the GC have had theirs but we had to confirm it would be held in trust until they are 18)

My grandmother did this for us! We were so surprised and grateful. She had 3 DC in their 70s. She split her estate 4 ways, so each DC got a quarter and us 4 grandchildren shared the fourth quarter. It was 25,000 for each grandchild. We couldn't have bought our house without it!

Something that happens more often than you might expect:

Grandma leaves money to dad. Dad subsequently dies and Mum remarries. Mum leaves everything to Newhub on the understanding that he will look after Son and Daughter.

Newhub leaves everything to his own neices, nephews and daughter, having destroyed or sold all Mum's family memorabilia.

Grandma may possibly have seen that happen.

@PresentingPercy

Honestly you cannot micromanage dc after about 25 years old. We have had several porches. We had very decent cars at a young age. We are utterly responsible adults who like cars. A fairly old Porsche doesn’t depreciate much anyway. When are you going to trust dc? At 35, 40 or will you dictate from the grave?

Ha, I'm mostly joking about the Porsches - he can have one in every colour as soon as he's an adult & earning his own money, as far as I'm concerned.

But I live in a country where many of his classmates drive themselves to school in fancy cars, & also he's just 16, so I'd rather stave them off until after uni, say, given the likelihood of him wrapping it & himself round a palm tree...

The variation at death avoids double inheritance tax under current law although all the childrem have to agree to vary the will to leave it all to the GC

Only read first page of responses but why doesn't she gift up to current allowed amount annually? If she is allowed to gift up to £3k per child annually (and it doesn't affect her lifestyle) and lives seven years from each gift it will be outside her estate (and rated pro rata if she dies within seven years). Unless all her wealth is tied up in illiquid assests.
As for age of beneficiaries- she could say X amount at 18, X amount at 21 then the remainder at 25, which would help with uni fees and living expenses but not overwhelmed them. It would be held in trust until those ages.
In fact she could probably put some assets in those trusts now, which may help with tax. She really does need to consult an estate planner - go with her (and your sibling) having discussed issues and questions first (write them down). An hour with the right person will greatly clarify everything and not be too costly. Then she can consider her options and make an informed decision. It's great she is addressing this now and it will prevent a lot of future issues if you all keep it an open and frank discussion.

Lots of good advice, just wanted to agree with those saying keep it in trust until the gc are 25.

If they needed money for university or something important before then, they could “borrow” from the trust.

just wanted to agree with those saying keep it in trust until the gc are 25
I agree if DC are very young but try to build in some flexibility.
When we did our last but one will we set up trusts to allow them access to some at 21 and the rest at 25.
When by 18 and 20 they were responsible young adults and we re-did the wills without any trusts and made them joint execs.

@CorvusPurpureus OP did you say your DM was recently widowed? Could you not vary your late fathers will to distribute his estate more tax efficiently so that it isn’t all your mums should care home fees become necessary in the future? Not sure if this is possible?

It’s tax efficient to leave it to your wife/husband as far as IHT is concerned. It’s now the widow only who has to pay IHT. That’s why it’s all been left to her but she should be planning about how to give it away to minimise tax on her estate.

Sorry, just seen updates.

Varying df's will hasn't been discussed, largely because all of us were vaguely on board with the status quo of parents leaving it to each other, then to me & dsis, then it being for dsis & I to leave it to our dc (or to the local cats' home, wherever!).

It's only recently reared its head as an issue because dm finds herself fairly well off & in good health in her 70s, & has been pondering whether she could do the dgc more good by skipping a generation.

Dsis & I 100% get her POV, couldn't agree more that neither of us need to inherit a wedge from her when we are financially in good shape & will, ourselves, both probably be fairly elderly once she does pop off, & are fine with this in principle - it's just the financial logistics & legal ramifications that concern us.

FWIW dm suggested this very much as something she'd only consider if dsis & I were ok with it - she was anxious one or both of us might not like the idea, whereas we both agree it sounds like an excellent plan for our dc.

Lots of good advice here, thanks all.

I personally would want a trust in place that only allows payment of higher education expenses and modest living expenses while in higher education before the age of 30 or so.

Well if she gives it now to her grandchildren she will not pay IHT on that money if she lives for 7 years. It will help the grandchildren and it could be paid to them at 25. Or earlier and you are a trustee. If she doesn’t need the money, why wait for death? Lots of grandparents do this and pay for schools, deposits for houses etc. It’s better to give it when it could be of use.