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How to leave property to your grandchildren

Leaving property to your grandchildren could give them an invaluable helping hand, but you need to be aware of the complications, Lorna Bourke says.

How to leave property to your grandchildren

An increasing number of grandparents are helping out with their grandchildren's school fees, higher education costs and the deposit on a first home

Given that most 40-something adult children have already made that all-important step onto the property ladder, many grandparents may well be considering skipping a generation and leaving the family home to a grandchild or grandchildren, rather than their children.

But how do you leave assets to a grandchild – in particular property? Children under the age of 18 cannot own property. With mothers increasingly leaving childbearing until their 30s and even 40s, many grandparents now coming up to 70 have infant grandchildren.


The answer, according to experts, is to leave assets in trust for minor children. ‘A key point is that the trust should be written into the will, and age of access is crucial too,’ explains Julie Hutchison, a trust expert and head of technical insight at Standard Life. ‘If you don’t use a trust to control when the grandchild will inherit, he or she will be entitled to the asset left outright in a will at age 18.’ This is far too young an age to expect a person to behave responsibly. 

‘You can leave everything in a discretionary trust where it is up to the trustees to decide who gets what and when,’ Hutchison says. But this may not suit everyone. Even if your offspring are the trustees and the grandchildren the beneficiaries, many elderly people worry that the son or daughter will succumb to pressure from an unscrupulous partner, anxious to get their hands on the cash in the trust under the guise of benefiting the grandchildren. 

Parents who are trustees can access money provided the purpose is to benefit the child. But who is to check on how the money is spent?

Inheritance tax

Grandparents wanting to leave their family home to grandchildren – sometimes their only asset, and generally the main one – also have to consider inheritance tax (IHT). If the family home is worth more than £325,000 (or up to £650,000 if the owner is a surviving spouse who is entitled to use their deceased spouse’s unused nil rate IHT allowance) then there will need to be other assets to pay the IHT bill, otherwise the property will have to be sold to meet the tax charge.

You must also take into account that property or any assets left in a discretionary trust, or in a trust until a specified age, may incur a potential IHT charge every 10 years on a sliding scale of up to 6% of the value of the trust in excess of whatever the starting point for IHT is at that time. If money is not set aside to meet this charge, the trustees may be forced to sell the house to pay the tax bill.

You can leave assets to minors without realising you are setting up a trust. ‘A trust is automatically formed if assets are left to minor children at a certain age whereby the executors become trustees,’ says Emma Myers, TEP head of Wills and Probate at Cogent Law and legal adviser to Saga, the over-50s organisation. 

She suggests an ‘age contingent’ fixed trust, which would ensure that the grandchild or grandchildren would be entitled to the assets at a predetermined age – say 25 or 30 when they are less likely to blow the lot on a fast car or designer clothes.

But what would happen if most assets were left to the grandchildren, with the adult offspring receiving relatively small amounts? Wouldn’t the adults be tempted to apply for a deed of variation, reallocating the assets so that they inherited more? ‘That would be very difficult, as all beneficiaries must sign a deed of variation and minors under the age of 18 are unable to do so,’ Myers says. 

Income for parents, capital for grandchildren

If the main asset is a property, what some grandparents might want to do is leave the assets in trust, with the adult children enjoying the income from the trust until they die and the grandchildren inheriting the capital or the property. 

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26 comments so far. Why not have your say?

Mr B-Mused

Sep 19, 2012 at 13:41

Lorna, Lorna, Lorna. Another one of your stunning articles. Article about something that few have interest in which can be summed up by saying 'thinking about leaving assets to grandchildren - take legal advice!' I suppose at least this time you are not tryig to flog your house. Or are you now going to keep it and leave it to your grandchildren!

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Sep 19, 2012 at 14:34

"Children under the age of 18 cannot own property"

Is that a fact of law?

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Sep 19, 2012 at 16:11

Jonathan, when it comes to real estate, leased or otherwise, law.

If you put property into trust, then you have to consider the fees of the trustees and if discretionary on income/capital, to survivor, maybe there will be tax on gains periodically. If the grand kids are in their teens and the trust doesn't tie up the property beyond 18/21, maybe CGT may not apply.

Maverick more versed in that although his expertise was in a different field, but you will need expert advice. The law has tightened a lot over the years as the Revenue (AKA government) go hunting for money to niss up against the nearest wall. A local legal firm may not have the expertise.

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Sep 19, 2012 at 16:13

And, oh, I forgot accountants fees for annual accounts.

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Sep 19, 2012 at 16:18

Good of you not to show a picture of your own house looking its best on a summers day this time Lorna.

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John Thorley

Sep 19, 2012 at 16:33

Worry worry worry, just spend it, let your kids find their own way through life they'll be better people for it in the end!

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Dislexic Landlord

Sep 19, 2012 at 17:35

on my death every thing goes into a family trust ive decied this route to hopefully make things easy after ive gone

Pilot Trusts are handy in this sort of thing

also you can write into the trust excatly how a trust is to be used one other small point is Children and Grandchildren when or if they marry there spouses on devorce if it happends can not get there hands on a family trust

Also Each Pilot trust has its own exemption of IHT on revalueation every 10 years

I dont think there is any way around IHT if you hold assets in the uk but remmember there is a special rule that property and land have up to 10 years to pay IHT of course there is intrest to pay to HMRC but at least it keeps the estates assets together in the family trust

and just one other point only 5% of the uk population pay IHT I belive but i may be put right on that point

I would like to know others thoughts on this topic it is of great intrest to me

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Sep 19, 2012 at 18:26

If there is IHT in this country, how is it that the hugely rich aristocracy with their country estates and big industrialists like Mittal, Al Fayet, Branson, etc. can pass their wealth down the generations?

Your advice is for the peasants, you have no clue about the loop holes Lorna Bourke.

(Did you get your price for the house)?

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steven fieldfare

Sep 19, 2012 at 18:32

Most grandparents would have more than one grandchild. It would seem to me, therefore, that a good way to go would to be to leave any substantial property into a perpetual trust, where the property is rented out and income used repeatedly, after maintenance costs, to meet or part meet specific inheritance goals such as education fees and/or first house deposits for inheritors. If paternal and maternal Grandparents were to join forces in the Trust then the Trust might be that much more levered and effective for individuals depending on numbers and timing of need. Such a scheme could operate effectively through generations, especially if more assets were added to the pot.

Impracticable? I am mindful that the Middletons' premium education opportunities (and social connection) would seem to have been met from a far sighted Great Grandparent operating in this way.

The fly in the ointment, of course, is potential need for care and the asset sapping cost of it. It is perhaps the unspoken elephant in Lorna's topic cupboard (and the weakness in John Thorley's laissez faire approach). In future, those who inherit early and finish their education debt free with a house deposit to hand are likely to gain a 20 year head start over those who do not.

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Ted Thornton

Sep 19, 2012 at 18:35

Well done, very thought provoking

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Andrew Milne

Sep 19, 2012 at 18:39

1. There is no general rule as to what legal provisions to make for one's estate management and distribution

2. It is untrue to say the trusts should be in the will. See (1)

3. Persons under the age of 18 may not hold interests in UK land or property directly, but a trustee will hold the land for them until they attain 18.

3. Use a solicitor for drafting trusts, and an accountant to do the accounts. Trust law is specialised and accountants are not qualified to draft them.

4. Be very careful choosing trustees.Pick more than one. When there are two, they must act together. 3 or more will act by majority unless you require them to act unanimously.

5. Don't be pressured by children or .grandchildren, and in particular avoid "letting them have the house now and move into a home, gran" Keep your independence.

6. Feel free to make gifts to charity.Tell the charity you have done so.

7. You do not have to treat all children equally.If you have good reason to exclude one, leave a letter with your trustee giving them your reasons.

Never believe articles like this, see a good solicitor.

Finally, never go short so as to fill someones "expectations" It's your money and you should stay comfortable and independent, Like me, you'll be a long time dead. Enjoy!

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Sep 19, 2012 at 19:12

Quite a few sage and valid points made above.

Point 5 of Andrew's posting is particularly important to note, when it comes to money, trust no one to follow their promises, unless they are compelled to by the written word of a valid document. Even then some try and invalidate the document (usually as a result of a spouse's 'urging').

That has been my advice over the years, and I have seen on a number of occasions the litigation cost incurred when promises were made but not backed up by a binding document.

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Sep 19, 2012 at 19:33

Point 4 of Andrew's posting.

If you have more than one trustee, the others can resign so leaving the "awkward/bad trustee in charge.

Been there

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Andrew Milne

Sep 19, 2012 at 20:09

No you provide there must always be at least two Trustees

Then the one left can't act without finding one or going to the Court to appont one

But 2 good trustees resigning to leave a bad trustee in charge may well be a breach of trust, it's certainly a moral one!

Sorry you've been there, I wish I had been there to help

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Rob Walker

Sep 19, 2012 at 20:18

The most dangerous thing is predicting the future. Divorcing children, drug addict grandchildren, illegitimate claimants on everything et al. Best to leave it to your children in equal shares and leave them to decide if they want to 'gift' part of their inheritance to others. By the time the assets are nearing distribution time you'll be too doolally to judge or care and half the family will be out of control, gone to a monastery or in prison. All this Trust and Legal stuff just lines the pockets of the parasites. Keep the will simple and hope that your own kids have learned enough from you to act sensibly when it's payout time.

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Alan's opinion via mobile

Sep 20, 2012 at 00:51

Wise words Rob!

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Andrew Milne

Sep 20, 2012 at 06:04

Yes, Rob. I'm a lawyer, but, as happened in the US years ago, the legal profession in many countries has become degraded.Too many parasitical lawyers putting moneyfirst. Too many cosy deals. Too many lawyers chasing too few ambulances, and encouraging claims on TV. The root cause is that Universities vie to produce more and more of us because they make money and what they regard as prestige. The only goal must be to put the client first.

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John Thorley

Sep 20, 2012 at 10:39

Yes I was being a bit flippant with my 'laissez faire' approach I suppose but I do think a few more family holidays and big Christmas parties would often be better for all concerned than overly complex trust funds and other IHT avoidance tactics. You can't see your children and grand children when you're dead!

On a more tax avoidance stance it's my understanding that the way the super rich get round IHT is you incorporate your assets into a company structure with you and your spouse and children as directors and shareholders. You can right into the articles of association who can and cannot become shareholders thus protecting your assets from aggrieved ex-spouses of your offspring!

Your shares will become liable to IHT when you die but all the income generated by the assets in the company is only liable to corporation tax with nothing further to pay for basic rate shareholder/family members. There's not even an NIC liability as the income is Schedule D dividends.

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Dislexic Landlord

Sep 20, 2012 at 10:56

FAO John Thorley

I read the above with great intrest

Ive thought of forming a company but im not sure it can get around IHT can you tell me if you can will it help my situation where i hold all my property asssets personaly im my name only

Ive thought of buying through a company situation but my Accounant says there is little point

I would be intrested in your commenst

Thanks DL

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John Thorley

Sep 20, 2012 at 12:33

Well, I don't want to contradict your accountant as obviously I do not know all your financial circumstances but I can tell you about this remarkably simple and often very effective estate planning vehicle.

It's known as a Family Investment Company or FIC and to all intents and purposes differs very little from any other corporate body except that it's purposes is to transfer family wealth from generation to generation as tax efficiently as possible.

Once up and running cash funds and any other assets can be invested into the company and controlled by the directors (Mum and Dad). Shares can be given to son and daughter with no immediate tax implication as they are PETS (potentially exempt transfers) ie, if you survive more than 7 years from the date of the gift then they will not form part of your death estate and no IHT will be due on them. Here's the good bit, you've 'given' a share in your assets to your offspring but you are the director of the company so you still control the assets!

They also have the advantage that any income the FIC makes is only chargeable at corporation tax rates that will drop to 22% from April 2014 with no NIC to pay. However, when the money is paid out (ie: when mum and dad declare a dividend) then that dividend goes as top slice of income to all shareholders. Not a problem if the shareholder is a basic rate payer but incurrs extra tax if you are a higher rate payer. (25% for 40% payers).

So, the income can have a double tax charge but importantly, the tax charge on the income made into the company is substantially less than a trust or when owned by an individual. Thus, a bit like a pension, if the vehicle is left in place for a sufficient length of time then the accumulation of the income will more than offset any extra tax when the income is taken as a dividend. Moreover, as you decide when the income is paid you can make sure you take the income when the shareholders are basic rate payers of tax.

Finally, if you are umlimited, you don't need to file accounts! But be careful if you are trading within the company seek advice on public liability insurance!

Come on Lorna get your pencil out!!!!!

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Andrew Milne

Sep 20, 2012 at 13:00

Jewellery and stuff. You can make a list referred to in your Will. I have arrived at the home of a deceasd client; a daughter, the first to arrive, was trying to remove her dead mother's rings with liquid soap while she still lay where she had died.

Finally do not forget your loved pet.Leave financial provision and caring in safe hands. Or make provision with one of the reliable Societies. I'd suggest get advice from RSPCA or some breed clubs.Too often they are forgotten.

And its the last thing you would want,

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Lorna B

Sep 27, 2012 at 14:58

Readers will, I am sure, be very pleased to see the extra information added by Andrew Milne, Steven Fieldfare and John Thorley which is very helpful. Those who make inane criticisms should try writing about such a difficult subject in under 1,000 words. I do not publish information without checking and the facts in my piece were checked by two specialist solicitors before it was put up on the site. Those who want to be rude should be careful about the libel laws.

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Dislexic Landlord

Sep 27, 2012 at 15:10

Lorna You get some real idiots on here and ive had a number of personal comments regarding myself

You know the old saying empty Vessals make the most Noise



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Nov 20, 2012 at 22:45

FAO John Thorely

I do have companies. One is a trading and another is a holding company.

Is it possible to give shares to children in the holding company? Or do I have to create another FIC?will there be any liabilities? Tax/stamp duty

I keep getting contradicting advise.


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steven fieldfare

Nov 21, 2012 at 10:15

For NM

While not expert in this field, I point to the need for much care. Anything that smacks of "aggressive" tax avoidance is clearly under scrutiny as Parliament and HMRC seek to increase tax yields. What is acceptable now may be not so for much longer.

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Anonymous 1 needed this 'off the record'

Oct 26, 2013 at 17:32

I came on here to find out about leaving my assets in Trust for my grandchildren who are 6months, 5 years & 8 years of age. I have two children and intended leaving them a 50/50 share in the money generated by the sale of my house. I know my son will go through the money like a dose of salts rather than use the money wisely, also, we are now estranged. Therefore I want to arrange to leave his share to his children. I am warey of the dangers involved in having Trustees, as already pointed out on this Forum, and would appreciate any tips you can offer. I want to avoid any chance of my son getting his hands on the money intended for the grandchildren, because I know he will surely try!

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