Why oral trusts aren’t sufficient for gifts to grandchildren via their parents

iStock Credit:Ildar Abulkhanov

Well, if you like me thought you could write a will and that would be it, think again. As this it now getting really silly.

A good person wrote:

“A good person leaves an inheritance to their children’s children” is a little twist on an old proverb. But a wise grandparent will also seek financial advice to ensure their good intentions come to pass.”

Now there is the case

Martin (name changed) wants to gift £40,000 for the benefit of her two grandchildren. She has the capacity to make the gift and inheritance tax (IHT) is not an issue. His plan is to transfer the money to his daughter Emily and let her invest it.

Many advisers encounter this scenario after the gift has been made. It’s only then that those in Emily’s position find out an oral trust has been created and may question why they can’t invest it in their name.

Its seems while it’s legally possible to establish an oral trust, they are, in general, problematic and difficult to enforce. In Emily’s situation, financial organizations would require documentary evidence of his appointment as trustee, making it difficult for her to invest.

A discretionary gift trust is recommended because it enables Martin to make an outright gift into a formal trust arrangement. The trustees can manage investments in their capacity as trustees and will have discretion on when the grandchildren benefit, which Martin wanted. The trustees will legally own the investment but it’s not their personal property. Therefore, if the unexpected happens, such as Emily getting divorced, the trust fund will be protected for the benefit of her children.

A beneficiary or person under 18 is too young to be party to a deed of assignment but, if the trustees wanted to access funds tax-efficiently for a beneficiary while they’re still a minor, the trustees could irrevocably appoint segments under bare trust in favour of that young beneficiary. When the trustees encash, the gain will be taxable against the minor beneficiary as beneficial owner.

So, should you not be able to leave your estate to your sibling if they are underage 18 or their children without this extra propaganda?