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Navigating Estate Planning: Unravelling the Significance of 18-25 Trusts.
Trust for Bereaved Young Persons age 18-25:
In the realm of testamentary trust provisions, we encounter a distinctive legal construct known as the Bereaved Young Person’s Trust, colloquially referred to as the 18-25 trust. Such trusts come into existence when a bequest is directed towards the testator's offspring, contingent upon them attaining an age between 18 and 25.
It's crucial to emphasise that these trusts find application exclusively for the testator's biological or stepchildren. Grandparents, by way of illustration, lack the prerogative to include this trust in their wills for their grandchildren. Consequently, any bequest earmarked for grandchildren or nieces, for instance, will instantiate either a bare trust or a relevant property trust.
For a trust to qualify as a Bereaved Young Person’s Trust, it must meet the following conditions:
One of the minor's parents must have passed away.
The trust must have been established through the parent's will, intestacy, or under the Criminal Injuries Compensation Scheme.
The trust must adhere to the stipulations outlined in section 71D of the Inheritance Tax Act 1984, encompassing conditions such as the beneficiary attaining absolute entitlement to the trust property by their 25th birthday.
Upon the demise of the parent, the trust comes into existence, housing assets
within its purview. Funds can either be accumulated or utilised for the beneficiary's sustenance, education, or other welfare, at the discretion of the trustees. While the beneficiary is below 18, the trustees possess the authority to apply income and capital directly for their benefit or disburse capital to the surviving parent or guardian.
Upon reaching the stipulated age (no later than 25), the beneficiary gains unmitigated entitlement to inherit the assets held within the trust.
Tax Implications for Bereaved Young Person’s Trusts
Bereaved Young Person’s Trusts are exempt from the Inheritance Tax (IHT) charges applicable to relevant property trusts and qualifying interest in possession trusts.
There is no IHT charge in the following scenarios:
When a beneficiary acquires entitlement to capital at or under 18.
In the event of a beneficiary's demise under 18.
When the trust transforms into a Bereaved Minor Trust while a beneficiary is under 18.
Trustees making an asset advance for the beneficiary's benefit at or under 18.
While Bereaved Minor Trusts don't incur exit charges, the same cannot be said for 18-25 trusts in other instances. The exit charge, applicable when a beneficiary is between 18 and 25, is computed akin to that of a relevant property trust, with a maximum charge rate of 4.2% for assets exceeding the nil rate band. Notably, no ten-year anniversary charges accrue during the trust's duration.
Embarking on the journey of estate planning requires a nuanced understanding
of the tools available to secure the financial future of your loved ones. In this comprehensive exploration, we delve into the world of 18-25 Trusts and Bereaved Minor Trusts – two instrumental components in crafting a resilient estate plan. Join us as we demystify these trusts, offering insights and guidance to empower you in making informed decisions for the generations to come.