Help! Children's inheritance...

[Mumof2HE]

Both of my children have been left £5k in a Will. Myself and my husband have agreed to become Trustees of said legacies, ensuring that the children do not get the money until they are 21.

When the solicitor's originally e-mailed regarding the matter, they wrote

'We would prefer to retire our role as trustees and appoint you in our place. This would be because we would have to charge for administering each of the trusts and this would ultimately eat into the legacies that your children receive.

Would you both be happy to act as trustees? Each legacy would be treated as a separate trust and so we would recommend opening trust accounts for each legacy, or putting them straight into each of your children’s bank accounts (if they have one) for when they reach 21.'

With the above in mind, it was our intention is to open a child's ISA for each child within the next month, to feed the £5k into plus other savings they have. Obviously not allowing them to have the £5k until they are 21 (I know they will have access to that ISA at 18 and get a letter at 16 informing them of the account). I can assure you that it'll be 21 when they know about the money, I had money saved for me in my name that I didn't know about until I was sensible enough to use it wisely 🏠

Do you have to let HMRC know about a child's inheritance? I'm completely clueless, I've tried researching on the internet but could really do with it explained to me as simply as possible 🤭 I have a relative telling me I need to inform them otherwise I could get fined.

Anyone knowledgeable on this type of money issue who could provide some advice would be appreciated 👍🏻

You don’t need to tell HMRC. The tax liability, if there is one, is for the estate , not the beneficiaries.

If it’s in an ISA, currently earnings/ interest is also tax free.

£5k each doesn’t require a trust. Stocks and shares ISA and don’t tell them about it if you don’t think they’re sensible at 18, 21 or whatever.

You don’t need to tell HMRC anything.

We had similar with our daughter’s inheritance but she was almost 16. We just put it into a savings account initially, then drip fed it into her S&S ISA which was already set up.

How old are your children?

How are you going to hide the ISA account, when you are already aware that they will receive letters about it? You cannot just hide the letters from them! At 18 the ISA changes from a child’s ISA to an adult ISA, and from memory, they have to provide their NI number and maybe also have to sign and send paperwork back to ISA provider.

Any logins that you have will be defunct and they must set their own up. So, whether you tell them or not, once they are 18, they will have full visibility and control of the ISA account, unless you fraudulently set up the adult ISA and keep quiet for 3years?

If you wish to stick rigidly to 21, you may have to look an actual trust, as most child accounts, including ISAs, become theirs at 18, although there maybe one or 2 that don’t.

From our experience, education is the way to go, you need to be talking to them well before 18, telling them what they got, how much it has grown, how much it can help with house deposit etc, and making sure they understand how lucky they are. Education is everything in my experience.

My DC got much more than 5k, but at 15 and 17, so they received the solicitors letters directly. However, we spoke to them repeatedly about it and neither of them have touched, and have actually added to, the inheritance.

Banks no longer want to deal with trust accounts, and certainly not for £5k. They just don’t need the whole admin hassle just like your solicitors.

I think your best bet is the Jisa and no, they will need to verify their own credentials with the provider when they turn 18, so hiding it is difficult.

If you want to keep the 5K until they turn 21, open a new ISA for it. Otherwise they will have the right to access it when they turn 18 along with their other savings.

@Diningtableornot

It doesn’t matter whether it’s an old or new JISA, a JISA defaults to an adult one at 18, linked to a persons NI no, as it is tax free.

The child will thus have to sign and most likely provide ID docs with their signature etc at 18, there’s no way around that.

Ah! Didn’t know that. In that case maybe an isa a is not the best option.

How old are your kids?
It might be kicking the can down the road a bit but have you considered putting the money into premium bonds until they get to 16? It would give you some time to gauge how sensible they are with money and have conversations with them about it, but retain control of the money.
Mine are teens and that's what I did in that situation. They are happy for me to manage it until they turn 25 (age requested on will), so I will do that, and release the money as and when they need it (car/house deposit etc).

When your kids turn 16, your access to their Premium Bonds will be switched off and Ns&I will refuse to speak to you.

Your will will not be looked at until your death.

I understand that. I just meant putting the money into premium bonds until they are 16 retains control over them til a point where you can gauge how sensible the kids are. OP can then remove them and put them in her name for them or an account for them depending on when she wants them to be able to gain access. The will I was referring to was the one in which the children were left money to be accessed at a specific age.

Are you sure the 21 clause still stands? I thought it wasn’t a thing anymore and could be over-ridden.

When my children inherited, the wording of the will was very much that it was theirs but for the parents do to as they see fit to manage the money on their behalf and for their benefit. When I set up their s&s ISA I needed to send across a letter to show the money was fully theirs and where it had come from.

Where you might be getting confused is the fact that money earned from a child account is taxed at the parent’s rate over £100 of income unless it’s in an ISA so some providers will want you to prove it’s theirs and not you stuffing your own money in a child account to get a better rate. You also have to tell hmrc your child is earning over the personal allowance but your kids won’t be anywhere near that so not something to worry about.

I've just had to register a trust. If the money is held in trust currently, and you will take over as trustee, then it needs to be registered if the trust is to go on for more than 2 years following the death of the deceased, regardless of whether it will attract tax or not. If the inheritance was recent then my guess is that the solicitors haven't registered it yet (you have up to 2 years to do so) and they are retiring as trustees almost immediately, so you will have to do the registering. It's really very simple and can be done online in a few minutes.

You then need to decide on a suitable place to put the money that's in the best interests of the children.