Probate – What if a beneficiary is under 18?
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Trustees have various way of paying money to beneficiaries ahead of them reaching 18 (or older).
If your will makes gifts to minors, your executors/trustees can make payments to minor beneficiaries before they reach 18. There are various ways of doing so. Here will be considering:
- receipt – who can give trustees a receipt for any payment made
- education & maintenance – payments made for this (eg to guardians)
- advancement of capital – under the Trustee Act
What do we mean by making a payment ‘early’?
The obvious scenario in which early payments may become needed are gifts to children (minor). So, if a will (for example) gifts the residuary estate in equal shares to say 4 children, they will each receive 25% of the estate. If any of them are under 18, that money will have to be held until they reach 18. This assumes the will is ‘silent’ as regards age. In fact, many testators (someone making a will) will actively specify an age later than 18 on the basis that they feel an 18 year old might not yet be ready to handle large sums of money.
What we mean therefore by ‘making a payment early’ is paying some or all of the gift of residue to the beneficiaries ahead of their 18th birthday, or, if a later age is specified, then before that stated birthday – eg 23 years old perhaps. This is called the ‘power of advancement’. And, trustees must ensure that when making payments early they do so with either the authority of the general law, or through specific powers afforded to them in the will.
For the purposes of this article we are focusing on the payment of gifts our of the residuary estate (rather than specific cash legacies). You can find out more about the difference between them in our article Cash Legacy or Gift of Residue?
We will also be referring to trustees (rather than executors) as by definition a trust will have arisen. In fact, it is very likely that it would be the same people acting as trustees as dealt with probate. If you would like to read more about the difference between an executor and trustee check out are article What is the difference between an Executor and Trustee?
Why can Trustees not pay money to a minor beneficiary (under 18)?
The law states that a minor (someone under 18) can not give a ‘valid legal receipt’. A Trustee should never make a payment without valid receipt. Technically, it would be as if the payment was never made, and the trustees could be liable to personally make the payment a second time! NB, whilst money can not be paid directly to the beneficiary before they reach 18, it can be paid via the guardians appointed in the will.
However, what if the gift is (as above) to be paid at a later age of say 23? This creates 2 periods of interest:
- date of death – date of 18th birthday; and thereafter
- 18th birthday – 23rd birthday
As above, period 1 (up until the beneficiaries 18th birthday) is a period during which no direct payments can be made directly to the beneficiary themselves (as they can not give valid legal receipt). This changes on the anniversary of the 18th birthday! Now, there is potential for payments to be made directly to the beneficiary and them give ‘valid legal receipt’. Trustees have ‘power to advance’ in both periods (see below).
Duties of Trustees when holding money for beneficiaries
It is perhaps helpful to remind ourselves that trustees have 2 main responsibilities when holding the residuary estate on trust, that being:-
- Preserve/grow capital – to maximise the gift when it is eventually paid; and/but
- Education/maintenance – make money available for the upbringing of the ‘child’
Those responsibilities have a striking conflict with each other! And, it is why it is considered best to have differently individuals acting as guardian vs trustees. Otherwise, it creates a difficult dilemma for the guardians every time they need money for the upbringing of the children. If you would like to read more about this, check out our article How is money paid to the guardians of my will to take care of my children?
Money is made available to guardians before beneficiary reaches 18 years of age.
Power of Advancement
The issue of ‘valid capital receipt’ aside, the other main legal principle to consider with gifts of residue of this type is the ‘powers’ that your trustees have. The main law for trustee powers dates back to 1925 (The Trustee Act 1925)! In short, this sets out what trustees (and executors) can and can not do. It relates to all manner of things, including making payments to beneficiaries ahead of their age of entitlement (whether that is 18 or older). This is known as the ‘power of advancement’.
Remember, the trustees can in any event pay money to guardians (pre 18) as they see fit, and without restriction (in simple terms). But what about when the beneficiary reaches 18? Well, if the age of entitlement is 18 they receive whatever is left, and that’s that. If however their age of entitlement is older (take 23 as above as an example), there is then a 5 year period (18-23) during which the beneficiary is no longer a minor, can themselves give valid legal receipt, and things have suddenly changed.
How much can Trustees advance to a beneficiary after 18, but before age of entitlement?
The 1925 Trustee Act (s32) stated that the trustees had the ‘power’ to apply or advance up to half of the capital in this period. It was at their discretion, and was not a requirement (ie beneficiaries could not insist on money being paid to them).
However, legislation in 2014 amended this to provide a ‘backstop provision’ whereby ALL (rather than half) capital can now be paid over 18 if the trustees see fit. It remains the case that this is just a power and not a requirement, AND, it also remains the case that this provision can be amened in your will should you wish to. The rational for making a change might be to ensure that a proportion of capital is retained to be paid at the age you had in mind that the final inheritance would be paid.
What can be paid, when, and to whom?
So to summarise, trustees can advance capital as follows:-
- without restriction to guardians during the beneficiaries minority (pre 18) for education/maintenance
- without restriction direct to the beneficiary after 18 (until the age of entitlement set in the will
This assumes that the general provisions of the Trustee Act have not been changed within the boy of the will (eg reduced the power of advancement to say just half of capital as per provisions before the 2014 variation in the law).
Expert Probate Solicitors
We hope you’ve found this article on advancing money to minor beneficiaries helpful. Do please remember that it is a generic guide on the basics of the law in this area. It is NOT intended to be legal advice specific to you, nor should it or any comments left be taken as such. However, our expert probate solicitors are here to help so do please reach out if you need advice on any aspect of wills, trusts, or probate. You can email us, call, or leave a comment below.
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