Trusts for Children

Where property of any significant value is inherited by young children, it can be helpful to set up a trust to hold the property for them. A type of trust called a bare trust is commonly used in such situations.

The purpose of a bare trust is simply to hold and administer the property on behalf of the beneficiaries. This means that the assets intended for your children and set aside by you in the bare trust will go directly to them. The beneficiaries of a bare trust are entitled to the income and capital of the trust and can, when they attain the age of 16 years (the age of legal capacity), demand payment of the trust fund at any time.

Anyone over age 16 in Scotland can generally act as a trustee of children’s trusts. Often, trustees are family members, trusted friends or colleagues, professionals, or the nominee company of a Solicitor's firm. The person who establishes the trust (the settlor) can be a trustee, along with their spouse or partner if wanted.

The length of time a trust can last for will depend entirely on the type of trust you opt for.

The Trust Deed can stipulate a ‘trust period’. At the end of the trust period the trust, if it is still running, will come to an end and the trustees will be directed to transfer any remaining capital to the beneficiaries, either at their discretion or in such manner as the settlor has set out in the deed.

For example, if you have established a trust which stipulates that each of the beneficiaries are entitled to their share of the assets in trust at age 25, then the trust will run until the youngest beneficiary has reached that age.

The trustees hold the trust’s capital and administer it for the benefit of the beneficiaries as directed in the Trust Deed.

A trustee need not have expertise either in the task of general trust management or with regard to particular aspects of trust administration, such as finance, taxation or investment. Professional advice will normally be required in these areas.

Trusts are very commonly used by grandparents to protect assets for young grandchildren. If you wish to pass property of any significant value to your grandchildren (either by way of a lifetime gift or in your Will) then you can set up a trust to protect the assets for them.

You can stipulate in the Trust Deed (if you are making a lifetime gift) or your Will (if you wish the assets to pass on your death) the age that your grandchildren are to receive the assets held in trust, for example when they are 18, 21 or 25, and what share they are to receive. You can also specify whether or not you wish income and capital to be advanced to them before they reach the specified age.

Alternatively, you may wish to consider a discretionary trust, which provides a great deal of flexibility by allowing the trustees to determine when and how assets are distributed to a wide class of beneficiaries, such as children, grandchildren, great-grandchildren.

The right option for you will depend on your individual circumstances and wishes, so it is recommended you seek professional advice on trusts for grandchildren and the best course of action for you.