Trusts for Grandchildren UK (2026): Leaving an Inheritance Safely for Your Grandchildren

Leaving money outright to grandchildren who are under 18 at the time of the death creates immediate practical and legal problems: (1) MINORS CANNOT RECEIVE ASSETS DIRECTLY: a minor (under 18) does not have legal capacity to hold property in England and Wales. Any gift in a will to a minor grandchild cannot be paid to the child directly — the executor has a problem (2) STATUTORY TRUST KICKS IN AUTOMATICALLY: if a will leaves assets to a minor beneficiary without creating an express trust, the Administration of Estates Act 1925 and the Trustee Act 1925 s.31 create a 'statutory trust' that holds the inheritance until the grandchild reaches 18. At 18, the grandchild receives the entire sum outright — no conditions, no oversight, no protection from spending it immediately; (3) THE MONEY MUST BE MANAGED IN THE MEANTIME: during the period before the grandchild turns 18, the inheritance must be managed by someone. Without an express trust and named trustees in the will, this falls to the executors (who may also be the grandchild's parents, or who may have no investment management skills). The statutory trustee rules (Trustee Act 2000) apply — broad investment powers, but no tailored management; (4) EVERYTHING AT 18: under s.31 Trustee Act 1925, the statutory trust vests entirely at 18. Most grandparents would prefer to impose some minimum age (21 or 25 is common) or graduated ages. A bare trust also vests at 18 under Saunders v Vautier — earlier for an adult with capacity. An express trust in the will is the only way to control the age of receipt; (5) INHERITANCE TAX INTERACTION: where the grandchild is a minor and the grandparent wants to establish a trust during their lifetime (not just via the will), the rules differ — a lifetime settlement into a discretionary trust is a Chargeable Lifetime Transfer with IHT implications. A trust created by a will avoids this issue — it arises on death, so IHT applies on the estate in the normal way, not as a CLT.

There are four main trust structures used in wills to benefit grandchildren, each with different IHT, CGT, and income tax treatment: (1) BARE TRUST FOR GRANDCHILDREN: the simplest structure. The grandchild is the absolute beneficial owner but the asset is held by trustees (usually parents) until the child is 18 (or earlier if the child has capacity under Saunders v Vautier). No IHT periodic/exit charges. Income: treated as the child's income, not the settlor's (because the settlement arose on death, not during the settlor's lifetime — the usual parental settlement anti-avoidance rules do NOT apply to grandparent-to-grandchild trusts). Used for: straightforward cases where the grandchild is simply too young to receive the money — no conditions required; (2) TRUST FOR BEREAVED MINOR (S.71A IHTA 1984): a special IHT-privileged trust available when the testator is a parent of the minor beneficiary. Because a grandparent is NOT a parent of the grandchild, s.71A trusts are only directly available for parent-to-child bequests. However, a grandparent can use this structure if the grandchild's parent has already died (making the grandparent in effect the next-of-kin testator). Conditions: capital and income must vest at 18; the child must become absolutely entitled at 18; no prior interest for anyone else. IHT: no periodic charge; no exit charge on vesting at 18; (3) 18-TO-25 TRUST (S.71D IHTA 1984): similar privilege but the trust can defer vesting until up to age 25. Must vest no later than 25. Exit charge applies if the trust continues past 18 — but calculated on 40% of notional IHT at exit, not full periodic charge rate. Suitable where: you want the grandchild to receive at 21 or 25 rather than 18, but do not want full discretionary trust charges. Grandparents can use this structure where they are making provision for a grandchild whose parent has died; (4) DISCRETIONARY TRUST IN WILL: the most flexible structure. Trustees have full discretion over who receives what from the trust fund (within the class of beneficiaries named in the will). IHT periodic charge: every 10 years, up to 6% of the trust fund over the NRB. Exit charges on distributions. Income: taxed at trust rates (45% on non-dividend income; 39.35% on dividends) with a trust's standard rate band of £1,000 at basic rate. Used where: multiple grandchildren; unequal needs; protection from divorce or bankruptcy of a beneficiary's parent; long-term family wealth management.

The IHT treatment depends on which type of trust structure is created in the will: (1) ON DEATH — ALL TRUST TYPES: the value of assets settled into a trust created by will (testamentary trust) is subject to IHT in the deceased's estate in the usual way — 40% above the NRB (£325,000) plus RNRB (£175,000 if qualifying residential property passing to direct descendants). No separate CLT charge applies because the settlement arises on death, not during the settlor's lifetime; (2) DISCRETIONARY TRUST — ONGOING IHT CHARGES: (a) Periodic charge: every 10 years on the date of the trust's creation anniversary, up to 6% of the trust's value above the NRB available at that date. Calculated as: 30% × effective rate × value over NRB. Effective rate is based on a notional CLT (but only hypothetical); (b) Exit charge: when assets leave the trust (distributed to a beneficiary), a charge applies — proportionate to the periodic charge rate and the time since the last 10-year anniversary. Both charges are low at modest trust values (£50,000–£200,000) but significant for large trusts; (3) S.71A (BEREAVED MINOR TRUST) AND S.71D (18-25 TRUST): no periodic charge while the trust continues on the qualifying basis. Exit charge on s.71D trusts: proportionate charge on distributions between age 18 and 25, calculated at up to 4.2% (40% × 6% × years past 18 / 40); (4) BARE TRUST: no IHT periodic or exit charges. The asset is treated as belonging to the grandchild. If the grandchild dies before taking the asset, it falls into their estate; (5) APRIL 2027 PENSION CHANGE — RELEVANT FOR GRANDPARENTS: from April 2027 (Finance Act 2024), unused DC pension funds enter the IHT estate. If a grandparent is planning to leave pension funds alongside trust bequests, the interaction of the estate NRB, RNRB, and trust periodic charges needs careful planning.

Yes — but lifetime trusts for grandchildren have important differences from testamentary trusts (those created in a will): (1) LIFETIME DISCRETIONARY TRUST FOR GRANDCHILDREN: a grandparent can settle assets into a discretionary trust during their lifetime naming grandchildren as beneficiaries. IHT on creation: if the gift into the trust exceeds the NRB (£325,000), it is a Chargeable Lifetime Transfer (CLT) — IHT at 20% above the NRB on creation; the excess crystallises into IHT at the death rate (40%) if the settlor dies within 7 years. If below the NRB and no previous CLTs, no immediate IHT charge — but it counts as a CLT for 7 years; (2) PARENTAL SETTLEMENT ANTI-AVOIDANCE — NOT APPLICABLE TO GRANDPARENTS: under ITTOIA 2005 s.629, income from assets settled by a parent onto their minor child is taxed as the parent's income (not the child's). CRITICALLY, this anti-avoidance rule does NOT apply to grandparents — income in a grandparent-to-grandchild trust is taxed as the grandchild's income (or the trust rate if accumulated). This is a significant planning advantage of using grandparents (rather than parents) to settle trusts for minor grandchildren; (3) JUNIOR ISA ALONGSIDE A TRUST: a grandparent can contribute to the child's Junior ISA (up to £9,000/year 2026/27) as an alternative to or alongside a trust. JISA contributions are gifts using the annual exemption (£3,000/year) or small gifts exemption (£250/person). At 18, the JISA converts to an adult ISA under the child's control; (4) LIFETIME BARE TRUST — SIMPLE AND CHEAP: a grandparent can gift assets into a bare trust (using a trust declaration deed, signed by the grandparent and trustee). The grandchild is absolute beneficial owner from day one. CGT holdover relief (TCGA 1992 s.260) does not apply to a bare trust — but a gift to a bare trust is an outright PET (potentially exempt transfer) for IHT purposes. If the grandparent survives 7 years, no IHT; (5) TRUST REGISTRATION SERVICE: all trusts (except bare trusts in certain circumstances) must be registered with HMRC's Trust Registration Service (TRS) under the 5MLD Regulations within 90 days of creation. Failure to register attracts penalties.

Where a grandparent has grandchildren of significantly different ages — some adult, some minor; some from different families — a one-size-fits-all approach rarely works. Practical structures: (1) ADULT GRANDCHILDREN — OUTRIGHT GIFT: if a grandchild is 18 or over at the date of the testator's death, there is no legal barrier to an outright gift in the will. The gift can be paid directly. A grandparent may still choose to use a trust for adult grandchildren to protect from divorce, bankruptcy, or vulnerability, but it is not legally required; (2) MINOR GRANDCHILDREN — TRUST ESSENTIAL: as noted above, minor grandchildren cannot receive assets directly. An express trust with a specified vesting age (21 or 25 is common) and named trustees is the minimum requirement; (3) CLASS GIFT APPROACH — ALL GRANDCHILDREN SHARE: the will can leave a fixed sum or a percentage of residue to 'all my grandchildren living at the date of my death in equal shares, with shares to vest at age 21'. This sweeps in all existing grandchildren and requires trustees to manage until each vests. Simple; does not require updating as each new grandchild is born; (4) PRECATORY TRUST / LETTER OF WISHES: the will creates a discretionary trust and the letter of wishes (non-binding) explains how the grandparent wants the trustees to allocate between grandchildren — taking into account different ages, needs, and existing provision from the grandchild's parents. The trustees are not bound to follow the letter but will usually respect it; (5) PER STIRPES DISTRIBUTION: if a child of the testator predeceasces but leaves grandchildren, a per stirpes clause means the deceased child's share is divided among their children (the testator's grandchildren). This avoids grandchildren of a deceased parent being overlooked; (6) PRACTICAL CHECKLIST FOR THE WILL: (a) Name two or more trustees (never a sole trustee for a trust holding real property); (b) Include investment powers under the Trustee Act 2000; (c) Include an express power to advance capital; (d) Include a power to accumulate income; (e) Specify the vesting age; (f) Consider adding grandchildren's spouses or remoter descendants as discretionary beneficiaries in case of early death; (g) Accompany the will with a letter of wishes addressed to the trustees.