Aug 2010
Wills and Estate Planning
This month we will look at legacies given to minors under Wills.
A minor cannot give a valid receipt to executors/ trustees until reaching the age of 18 years.
If the legacy is a chattel (a specific legacy)–generally powers can be incorporated, within the Will, for the trustees to hand over the article to parents or guardians, who are then under a duty to hold the item until the child attains 18 years. Clearly the articles should be held securely and safely -insured as appropriate.
In similar terms, if the legacy is a sum of cash (known as pecuniary); it is possible for parents/ guardians to hold such monies until the child attains 18 years. If the child has - attained 16 years additional provisions could apply to pay the child direct. Again a well drawn Will should incorporate powers for the trustees to adopt such practice if considered appropriate.
A prudent course of action would be for the parents/guardians to invest the monies (in the name of the child) in National Savings type products which are guaranteed by HM government – ensuring that any maturity date of the investment does not exceed the minor’s 18th birthday.
If the legacy is that of cash and is more substantial (say in excess of £1000.00) then practical moves as above may be insufficient to protect the legal interest of the minor. It will be necessary to review precisely how the legacy is granted in terms of executorship and trust law principles.
There are two types of legacy- differing in the manner in which the legacy is held: vested or contingent.
Vested
This simply means “£1000.00 payable to A on their attaining 18 years”. The trustees are merely waiting to hand over the monies to A when A is 18 and is then capable of providing a receipt. In the meantime, the trustees are under a duty to invest the monies, either in accordance with the investment powers given under the Will, or by statute as under the Trustee Act 2000.
It should be noted that if A did not survive to 18 years -his/her estate would be entitled to the legacy payment. Compare this to the following:
Contingent
The operative words differ: “£1000.00 payable to B if and when they attain 18 years “– a prior condition has interceded to be fulfilled. The trustees have to wait until the legatee attains 18 years – if he/she fails to do so then the legacy lapses and forms part of the residuary estate of the original testator. The investment considerations remain the same.
Income arising on the legacy investment
If the legacy is vested the income arising is added to the capital (known as “accumulations”) and invested. It can, in appropriate circumstances, be made available towards the minor’s welfare, education or general benefit. The legacy therefore has the “benefit” of the income accruing.
However, a contingent pecuniary legacy, does not carry the income arising which would be then held for the residuary beneficiaries under the Will (or those entitled upon intestacy). There is one key exception:
If the legacy is granted to an infant, by his parent or by some other person, who is standing “in loco parentis” (ie a guardian or adopted parent) –then the legatee is entitled to receive the income –either again added to the capital or applied towards the infant’s welfare, education or benefit.
Other legal requirements
Whether pecuniary legacies are vested or contingent: for a minor, it is mandatory by law that two trustees are appointed to hold the legacy funds. The Trustees must also adhere to the investment parameters set out in the Trustee Act 2000 in terms of duty to take (professional) advice; suitability of the investment and the requirement for regular reviews etc.
Private trustees, who chose not to follow the above advice, do so at the peril of the minor being reasonably informed (via the internet) of their rights –it is not uncommon for 18 year olds to initiate enquiries as to what happened to “grandma’s legacy payment which she promised me when I became 18 years”!
Andrew Murdoch (ACIB, AIFP, Dip PFS, TEP, Solicitor)
(The content of this article is only intended as information and should not be considered as legal advice. Andrew Murdoch cannot be held liable for any loss caused by any act or omission as a result of information in this article).
