Prince Harry to benefit from Queen Mother’s trust on turning forty – what can we learn?

Whilst the media focus is mainly on the fact that Harry will receive more than William did when he turned forty, the supposed tensions between the brothers and whether the Queen Mother would have wanted him to have the money if she’d known the current state of play, we thought we’d focus on the less speculative, less subjective (but obviously just as interesting!) side of things!

So why is Harry inheriting now?

Whilst the details have not been made public, it is reported that in 1994 the Queen Mother set up a trust during her lifetime for the benefit of all her great grandchildren.  The terms of the trust in relation to William and Harry’s shares were that they would receive it absolutely on reaching the age of forty.  It is thought that the age of forty was chosen as they are young enough to appreciate and enjoy the money, whilst hopefully old enough to be living a secure and settled lifestyle, with less chance of squandering it.

When planning inheritance for younger family members such as minor children and grandchildren, it is common to include an age which they must reach before receiving their inheritance, whether this be via a bare trust during lifetime or by Will.  Forty is unusually late, with the norm being 21 or 25 (for the same reasons that the Queen Mother was thought to include this age stipulation) but perhaps was deemed appropriate due to the significant sum involved.

It is important to seek legal advice and/or use a professional to draft your trust or Will as there are many things to consider, including statutory provisions which could catch you out. These include:

• statutory provisions for advancement of income and capital for the child’s benefit before they reach the age specified – depending on the other terms of the trust or Will, these may need to be excluded.
• consistent age of entitlement to income and capital – for simplicity, it is usually desirable for the age entitlement to receive income and capital to be the same. If the age of inheritance is greater than eighteen it may be necessary to include a deferral of income clause in a Will, or this may be catered for if the STEP administrative provisions are included. If either, or both, are included, it is important to ensure that all the ages specified match up.
• death of a beneficiary before reaching the specified age – with a lifetime bare trust, it is likely that the trust fund would pass via intestacy to the parents of the minor. With a Will, it is important to make provision for what should happen in this unfortunate scenario.
• taxation – it is always important to consider the tax implications of setting up a bare trust or leaving assets to a minor by Will.

Advancement of inheritance – things to consider

The earliest age that someone can ‘give good receipt’ i.e. receive their inheritance directly is eighteen.  If the testator dies before the child reaches eighteen (or the later age specified in the Will), the monies will be held on trust by the trustees. The trustees are often the same people as your executors (although a Will can be drafted to appoint different people for each role) and it is important to pick people who you trust to act as gatekeeper of your children’s inheritance.  It may also be wise to choose different trustees to legal guardians, to provide an objective and robust approach to any advancement of the funds. The matter of legal guardians is a subject in itself and we have written previously about it here.

It may also be possible for the trustees to pay the inheritance to the parent of the minor child (for example where a grandparent is leaving a sum to a minor grandchild).  There is a statutory provision that allows for this, providing the terms of the Will have not excluded it.

Alternative to bare trusts

When leaving inheritance to minors, it can be difficult to decide what age they should inherit as there are so many life decisions ahead of them and uncertainty as to what their future has in store.  An alternative to specifying an age for inheritance is to use a different trust structure, such as a discretionary trust. The minor beneficiaries would be named as potential beneficiaries of the trust and the trustees would decide if and when each beneficiary receives funds and in what sums.  They would be guided by a letter of wishes from the person setting up the trust and this provides flexibility for family members to be provided for according to their particular circumstances at any given time.  A discretionary trust can be valuable in a wide range of scenarios, whether it be that a child has additional needs and/or is vulnerable, through to concerns that the child is simply an irresponsible spender.

How can we help?

• review of existing Will leaving sums to individuals who are currently minors;
• drafting Wills leaving sums to minor beneficiaries;
• review of current trust arrangements;
• advice on different lifetime and Will trust structures;
• drafting and set up of lifetime trusts; and
• drafting Will trusts.

Please contact a member of our Wealth Preservation team for assistance.