Answer: One option would be to gift sums to your grandchild now. The simplest solution for a small amount of money would be an account in your name designated for your grandchild until he or she reached 16 (Scotland) or 18 (England and Wales), provided you can afford this.
If you are considering leaving a large sum and/or are concerned about your grandchild having access to the funds at 16, you could consider a lifetime trust, which specifies entitlement at a greater age. However, there are tax implications - again, see below.
If you prefer to leave the sums in your wills, each of you has an inheritance tax "nil rate band" of 325,000, assuming you have not made any significant gifts in the past seven years.
Inheritance tax (IHT) may be charged at 40 per cent on the value of your estate over the nil rate band. If your husband leaves everything to you in his will, and dies before you, it may be possible for both of your nil rate bands, 650,000 in total, to be available on your subsequent death.
The same would apply in the reverse situation, if you die before your husband. Property and investments can increase in value and you do not know what the value of your estates will be when you die.
A simple legacy of a small sum can be left to your grandchildren, if you are happy for them to have access to the funds at 16. In addition, the sum can be index-linked so that it does not lose value in the intervening period before your death.
Or, if you are considering leaving a large sum and/or are concerned about your grandchild having access to the funds at 16, you could use a discretionary trust. Until such time as you specify, the trustees have the power to invest the beneficiaries' share of the capital and use the trust funds at their discretion for the beneficiaries' maintenance, education and benefit.
Your wills would specify the age at which you feel it is appropriate for your grandchild to receive their share of the income capital. Under the current tax regime, this trust and the lifetime trust may be subject to ten-yearly tax and exit tax at a rate of 6 per cent of the value of the trust assets over the nil rate band. It is important that legal, tax and financial advice are all taken in respect of all of the above.
• Glen Gilson is a partner and head of private client and financial services at HBJ Gateley.
If you have a question you need answered, write to Jeff Salway, Personal Finance Editor, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: [email protected] The above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given.
The Scotsman Publications Ltd and HBJ Gateley accept no liability on the basis of this article.