Testamentary trusts for minor children
Minor beneficiaries gain the most from testamentary trusts. Here's why, and how the structure works for young children.
Testamentary trusts are particularly valuable for minor children because income distributed to minors through a testamentary trust is taxed at adult rates rather than penalty rates. Combined with control over distributions and asset protection, testamentary trusts are often the default structure for parents leaving substantial assets to children.
The tax advantage
Income to minors from a testamentary trust is taxed at adult marginal rates. This means significant amounts of inherited income can flow to children each year with minimal tax – especially useful if the income funds education, housing, and care.
Control over lump sums
An 18-year-old receiving a lump sum inheritance often spends it unwisely. A testamentary trust lets the trustee distribute over time – for specific purposes like education, a home deposit, or business startup – rather than handing everything over at 18. Distribution ages of 21, 25, or 30 are common.
Protection from life events
If the child later faces divorce, business failure, or bankruptcy, inheritance held in trust is typically protected. For parents wanting to ensure inheritance reaches grandchildren regardless of their child's life events, a testamentary trust is the standard tool.
Multiple children
Testamentary trusts can have separate sub-trusts for each child, or one combined trust. Separate sub-trusts give each child their own tax planning and protection. One combined trust gives the trustee flexibility to respond to different children's needs (one may need education funding, another medical care, etc.).
Guardian vs trustee
The guardian of a minor (who cares for the child) doesn't have to be the same person as the trustee (who manages the money). Many families appoint a guardian for nurturing the child, and a separate trustee to manage the inheritance – sometimes with an independent co-trustee to oversee.
Summary
Minor beneficiaries gain the most from testamentary trusts. Here's why, and how the structure works for young children.
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Related reading
- Testamentary trust tax advantages explained
- What is a testamentary trust?
- Testamentary trusts service
Disclaimer: This article is general information only and does not constitute legal advice. Estate planning is deeply personal - every family's circumstances are different. For advice specific to your situation, please contact Rosewood Succession Solicitors.