Setting up a Trust - any other way?

[Urbandreamer]

The inheritance would be mainly shares as the hope would be that the children could benefit from the income every year, even after they become adults. I did not know that children could not own shares. So does this mean that a person cannot leave shares to children in a will? So what happens in such a situation? Does the executor have to sell the shares and give the cash proceeds to the child? With cash yielding so little these days that would not be the ideal solution.

I suspect that we have an issue with the usage of words like own and children. Children can "own" things like shares, as the beneficial owner. This is how equity JISA's work.

The children (meaning people below the age of legal majority) own the benefits of the shares, but have no authority in respect of the shares. So, when I taught my children how to buy shares in their JISA, they were not technically buying the shares, even though they pressed the button. What they were doing was acting as my agent to buy the shares that I had got them to chose and that I had authorized. When they reached majority they "owned" the shares, in the sense that they could legally sell them without my authority, though there was no transfer of ownership, just a transfer of authority.

JISA's are in fact a form of bare trust, remember that lack of paperwork, the bare trust aspect is just inherent in their structure.

In the event of a direct inheritance, someone, usually a parent, would have to become the trustee of a bare trust operating for the child / children.

It may be of note, that I am talking English law. Different jurisdictions may have different rules about "children" and ages. For example a 12 year old can legally make a will in Scotland and "children" have full legal majority (can own shares) from the age of 16.

[Lootman]

Indeed, and the moment they reach majority the beneficiary can demand delivery of the trust assets. Which I am not sure achieves the OP's purposes

I found that when my children reached 18, and were aware of the assets, I did nothing and they did not demand immediate transfer into their names.
So whilst legally they could have demanded immediate access and wasted it all, in practice the fact that the assets were registered in someone else's name continued to protect them for several more years by which which time they were sensible enough not to do anything silly.

Of course you could always not tell them about the trust or the assets. Then when they turn 18 they would not know there were any assets to waste!

[scrumpyjack]

Indeed, and the moment they reach majority the beneficiary can demand delivery of the trust assets. Which I am not sure achieves the OP's purposes

I found that when my children reached 18, and were aware of the assets, I did nothing and they did not demand immediate transfer into their names.
So whilst legally they could have demanded immediate access and wasted it all, in practice the fact that the assets were registered in someone else's name continued to protect them for several more years by which which time they were sensible enough not to do anything silly.

Of course you could always not tell them about the trust or the assets. Then when they turn 18 they would not know there were any assets to waste!

They would need to be told of anything affecting their tax returns but I have to admit I didn't remember to tell them they had the right to have things transferred into their names. How absent minded of me!

[Tara]

If you just leave shares to a minor, it automatically creates a trust to hold the shares until they reach majority. Or you can create a more complex trust.

That is interesting. How would this “automatic trust” actually work in practice if someone leaves shares in their will to a minor child? For example, if a parent has died and leaves in their will some FTSE shares worth £300,000 to a 10 year old child.

Who prevents the child from having the shares transferred into their name? Is it the executor, or some government agency, or the registrar of the FTSE company?

Does an actual trust have to be legally set up for the child? Who is expected to set up the trust? Does the executor of the will do this or someone else? Who appoints the trustees?

What happens to the annual dividends? Are they just added as cash to the trust or distributed each year to the child? Is the child liable for income tax on the annual dividends?

And what happens when the child reaches 18? Does the executor or trustee contact the child and automatically transfer ownership of the shares to their name?

And a minor child may know nothing about their inheritance for many years. Is there not a risk of misappropriation of the trust assets by unscrupulous persons during these years? What if the surviving spouse is the trustee for example, and they have married again, and they need some extra money? What is to prevent them from selling the shares that the child inherited or spending the dividends? And if something like this is done, how would the child be compensated for their loss of £300,000 plus dividends, and who would compensate them?

[genou]

If you just leave shares to a minor, it automatically creates a trust to hold the shares until they reach majority. Or you can create a more complex trust.

That is interesting. How would this “automatic trust” actually work in practice ....

This seems a good enough one pager - https://www.thegazette.co.uk/all-notices/content/103941 .

I can't address your concerns about fraud. Choose your executor / trustees wisely.