March 10, 2014
If the children are over 25 years of age when the testator (the person making the Will) dies, they receive their inheritance immediately: if they are not then they don’t and trustees manage their inheritance until they attain that age – simple as that!
The two ‘types’ of trust arise out of the Finance Act and HMRC’s differing treatments of these two trusts. Broadly – if the trust ends at age 18 then there are no further tax charges to the trust. However, if the vesting age is over that age then the trust becomes a ‘relevant property’ trust and becomes subject to exit charges. This is calculated as a proportion of the six percent 10 year anniversary charge whenever an appointment of trust funds is made to a beneficiary in advance of their vesting age. Of course this tax charge only applies on the part of the trust which is over the nil rate band.
So, let’s tackle the first part – can the trust continue to 35 years of age? The answer is ‘yes’ but there are caveats and downsides to doing so.
Firstly, remember that if a trust continues to 35, then from 18 to 28 there is a 10 year period, so the trust immediately becomes charged to a 6% anniversary charge on the value over the nil rate band (there are more complications to this but this is the main point). After 28 y/o the trust then enters a second 10 year period and at 35 y/o there will be exit charges when the fund ends based on 7/10 of the 6% anniversary figure. So, the caveat here to the client is ‘yes you can extend a trust to 35 but there are potential tax consequences’.
The second point is the view that the court would take where a trust is continued until, say, 35 years of age. First of all, at law there is nothing to prevent this, save for the points above. However, should trustees refuse an advancement to a beneficiary the courts typically take the view that the older the child is the burden placed on the trustees to justify why they are withholding funds becomes proportionally greater. So, in the end a more pragmatic approach is taken and as one might hope and expect, the court will defeat an errant trustees actions where their actions are deemed unreasonable.
However, if you have any concerns regarding your estate, as a Will writer in Bexhill-on-Sea, I’ll be happy to offer you a FREE CONSULTATION NO OBLIGATION in your home, if you live in Hastings, Battle, Rye or anywhere in Sussex & Kent.
