Lasting legacy

By THIS IS MONEY
Updated:

 

MY parents intend to leave a legacy of between £70,000 to £100,000 to my son who is almost 18. As he has yet to learn the value of money, can £10,000 to £20,000 be left in cash and the remainder invested so he can get an income from it or so it can be safeguarded from indiscriminate spending until he is capable of handling such an amount himself? JT, Pembroke Dock.

Lee Robertson, independent financial adviser with Investment Quorum says: In this situation, it would be worth considering an Accumulation and Maintenance Trust. These trusts are used to benefit children under the age of 25.

There must be a living beneficiary when the trust is established. Until a beneficiary (in this case your son) is 25, the trustees may accumulate income, or pay it out for his or her maintenance or education, and the trustees can pay out capital if they wish.

Once a beneficiary reaches the age of 25, the income must be paid to him or her. The capital may also be paid out at the trustees' discretion, but it may also pass to another beneficiary (eg, the parents).

These trusts are valuable for helping reduce the value of an estate for inheritance tax purposes, but not to give the beneficiary control of the assets; where a grandparent or other person wishes to pay school fees; or it is desirable for the trustees to control capital for a long period.

Income received by the trustees before the beneficiary is 25 is taxed at 34%, but a rebate may be claimed depending on the beneficiary's tax position. It would be possible to ensure that the money does not pass to beneficiary in the unlikely event that they never reach a maturity level and remain unsuitable to receive the funds.

To set up one of these trusts see an independent financial adviser or suitably experienced solicitor.

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