Bereaved Minors Trusts and IHT: s71A IHTA 1984 Explained

A BMT must be created by the will (or intestacy) of a parent of the beneficiary. 'Parent' includes a natural parent and a person who was treated by the will trust as standing in the position of a parent (e.g. a step-parent who is the testator). The trust cannot be created during the parent's lifetime — it must arise on death. It can also arise on intestacy where the intestacy rules create a statutory trust for the children of the deceased.

The trust must be held for the benefit of a child of the deceased — including legitimate, illegitimate, and adopted children. Step-children do not qualify for the s71A BMT exemption. If the will creates a trust for a step-child, it is treated as an ordinary discretionary trust (subject to the relevant property regime) unless a separate qualifying route applies. The beneficiary must be under 18 at the date of the parent's death.

Under s71A, the trust must vest in the child absolutely by their 18th birthday at the latest. This means the child must receive both the income entitlement and the capital outright at 18 — the trustees cannot continue to hold the trust beyond that age. This is the most common drafting point where BMTs fail: wills that direct trustees to hold until age 21, 25, or at trustees' discretion do not satisfy s71A (though they may satisfy the s71D 18-to-25 rules instead).

Between the date of the parent's death and the child's 18th birthday, no other person (other than the child) may receive any benefit from the trust — whether income or capital. This means: a surviving parent cannot receive income from the BMT; the trustees cannot accumulate income for anyone other than the child; and if the child dies under 18, the trust fund must pass either to the child's estate (not to another named person). The 'no other benefit' condition is strictly construed. Ordinary trust expenses (trustee fees, investment management) are not treated as benefits to other persons for these purposes.

What IHT charges does a bereaved minors trust avoid?

A BMT that satisfies all the s71A conditions is exempt from the IHT relevant property regime charges: (1) No 10-year periodic charge — there is no 10-year anniversary charge on the trust fund (unlike an ordinary discretionary trust which faces up to 6% every 10 years). (2) No exit charge — when the trust property is appointed to the child (either on reaching 18 or on an earlier distribution of income), there is no IHT exit charge. (3) The initial transfer into the BMT (which happens automatically on the death of the parent) is not a chargeable lifetime transfer — the assets simply pass from the estate to the trust as part of the administration of the estate. The estate pays IHT on death in the usual way; the BMT is then IHT-neutral for the period the child benefits from it.

What is the difference between a bereaved minors trust and an 18-to-25 trust?

Both are special IHT-favoured trust regimes introduced after Finance Act 2006 to provide relief for trusts established for children of a deceased parent. The key differences: (1) BMT (s71A): the child must become entitled by 18. No IHT charges apply during the trust period. On the child reaching 18, the entire fund passes with no exit charge. (2) 18-to-25 trust (s71D): the child may be entitled between ages 18 and 25. Between ages 18 and 25, exit charges apply — calculated as a fraction of the full relevant property charge, up to a maximum of 4.2% (0.6% × 7 years maximum above 18). During the trust period (while the child is under 18), no charges apply (like the BMT). The 18-to-25 trust is therefore less IHT-efficient than the BMT after age 18, but allows trustees to defer capital distribution to a later age (up to 25) if the parent is concerned about giving a large sum to an 18-year-old. Most wills advisers offer the choice of both routes.

Can a BMT include discretionary powers for the trustees?

A BMT can include some discretionary powers without losing its s71A status — but only if those powers do not allow other persons to benefit, and the child's absolute entitlement at 18 is not fettered. For example: trustees may have the power to advance income to the child before age 18 (advancing income to the beneficiary, not a third party); trustees may have powers to invest and accumulate income for the child's benefit; and the trust can include powers to pay trust expenses from the fund. However: trustees cannot have a power to appoint capital to another person; they cannot have a power to defer the child's entitlement beyond 18; and they cannot have a power to benefit a surviving parent or other family members. If the trust deed includes overarching discretionary powers (e.g. 'the trustees may pay income to any beneficiary') that could be exercised to benefit someone other than the child, s71A is not satisfied.

What happens if the child dies before reaching 18?

If the child beneficiary dies before reaching 18, the BMT must pass the trust fund to the child's estate (i.e. it passes under the child's will or intestacy). The trust cannot direct the fund to a sibling or another person on the child's death — this would be 'another person benefiting' from the trust and would breach the s71A conditions. This is a limitation of the BMT: if the child dies under 18, the parents may have wanted the fund to pass to other children, but the BMT cannot accommodate this. For flexibility on the child's death under 18, an 18-to-25 trust or an ordinary discretionary trust (accepting the relevant property charges) may be preferable. An ordinary discretionary trust also allows the testator to specify what happens to the fund if the child dies, which a strict BMT cannot.

Does a BMT need to be specifically named in the will?

No — a will does not need to use the phrase 'bereaved minors trust' or refer to s71A IHTA 1984 specifically. The trust qualifies for the s71A exemption if its terms satisfy the statutory conditions, regardless of what it is called in the will. In practice, well-drafted wills for parents with minor children will be structured by the will drafter to satisfy s71A (or s71D) conditions — the drafter will ensure the entitlement age is 18 (for s71A) or 18–25 (for s71D), and will include the appropriate restrictions on other benefits. It is the substance and effect of the trust terms, not the label, that determines whether s71A applies.

Can a bereaved minors trust be created by deed of variation after death?

Yes — a deed of variation made within 2 years of the death can redirect assets into a trust that qualifies as a BMT, and the variation is read back into the will (under s142 IHTA 1984) for IHT purposes. This means the redirected assets are treated as if they had passed under the original will, and the BMT qualifies for the s71A exemption from that point. A deed of variation can therefore be used to create a BMT after death — for example, where the will did not include a trust for minor children but the surviving beneficiaries (e.g. the surviving parent) want to create one. The variation must satisfy all the usual s142 conditions (in writing, within 2 years, the variation statement included) as well as the s71A trust conditions.