Trusts for Minors and Grandchildren
Securing the Next Generation's Future with Care, Control, and Tax Efficiency
Creating a trust for your children or grandchildren is one of the most considered and effective ways to secure their future — providing structure for how wealth is managed and distributed, rather than handing a large sum to a young person who isn't yet ready for it. Whether you're planning for university fees, a first home deposit, or long-term protection across several generations, choosing the right structure is central to making the planning work.
Why Use a Trust For Minors or Grandchildren?
A trust is a legal arrangement in which trustees hold assets — cash, property, shares or investments — for the benefit of beneficiaries. For families planning for younger generations, the benefits are practical and significant:
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Asset Protection: Funds held in trust can be safeguarded against potential mismanagement, as well as future divorce or bankruptcy of a beneficiary.
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Controlled Distribution: You decide when and how funds are released — at a particular age, in stages, or for specific purposes such as education or buying a first home.
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Tax Efficiency: Properly structured trusts can reduce inheritance tax exposure and make sensible use of the beneficiaries' own income tax allowances.
The Main Trust Structures Used For Younger Beneficiaries
Choosing the right type of trust depends on your goals, the size of the family, and how much flexibility you want to retain.
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Bare Trusts
The simplest form. Assets are held by a trustee for a specific child, who gains an absolute right to them at age 18 (16 in Scotland). The income and gains belong to the child for tax purposes, which is part of what makes bare trusts attractive — though the trade-off is that, on reaching adulthood, the beneficiary takes the assets outright.
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Discretionary Trusts
The most flexible structure. Trustees have discretion to decide which beneficiaries within a defined class — for example, "my children and grandchildren" — receive what, and when. This structure is ideal for growing families, especially when future circumstances are unpredictable or when some beneficiaries may need more protection than others.
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18-to-25 Trusts
A particular structure created in a parent's will, under which the deceased's children may benefit from favourable inheritance tax treatment if they receive their entitlement between the ages of 18 and 25. These can be very useful in family wills but are technical, with specific rules around how they qualify.
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Vulnerable Person's Trusts
A specific structure for beneficiaries who meet defined legal criteria (typically receiving certain disability benefits or a child who has lost a parent). They can carry favourable tax treatment alongside the protection. We cover these in detail on our Trusts for Vulnerable Beneficiaries page.
A Key Distinction: Parents vs Grandparents
There is one important tax distinction worth understanding clearly, as it materially affects how a trust is structured:
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Trusts settled by a parent on their minor unmarried child. Where a parent puts assets into trust (or gives them outright) to their own minor child, any income arising above a small de minimis of £100 per parent, per child, per tax year is taxed as if it were the parent's income. The rule is designed to prevent parents shifting income to their children to use the children's tax allowances.
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Trusts settled by grandparents. This anti-avoidance rule does not apply to grandparents. Grandparents settling assets for their grandchildren can make full use of the grandchildren's own personal income tax allowances – which makes grandparent-funded trusts particularly tax-efficient for funding school fees, university costs, or long-term growth.
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For families considering how to support the youngest generation, this single distinction often determines who in the family is best placed to set up the trust.
A Real Case Worth Knowing: Precision in Trust Drafting
A recent case — Marcus v Marcus [2024] EWHC 2086 (Ch), with the appeal dismissed in [2025] EWHC 1695 (Ch) — illustrates exactly why careful drafting matters in trusts of this kind.
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The case concerned a discretionary trust set up by Stuart Marcus for "the children and remoter issue of the Settlor". After Stuart's death, it emerged that one of his two sons, Edward, was not his biological child — a fact unknown to Stuart during his lifetime. Stuart's other son challenged Edward's status as a beneficiary, arguing that "children" should mean biological children only.
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The court — and, on appeal, a High Court judge — held that Edward remained a beneficiary. The reasoning turned on the settlor's evident intention: in Stuart's "real world", he had treated both sons as his children, and that was what the word meant in the context of the trust he had created.
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Practitioners have widely noted the case as a reminder that loose terminology can leave even a well-meaning settlor's wishes vulnerable to dispute. Children. Issue. Descendants. Stepchildren. Adopted children. Children born via surrogacy or assisted reproduction. In modern families, none of these terms can safely be assumed to mean what they once did. A trust deed that is drafted precisely — and reviewed as family circumstances change — is the single most reliable protection against future disagreements.
Essential Considerations
A well-functioning trust for children or grandchildren rests on a few foundations:
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Choose your trustees carefully. At least two reliable, organised people should be chosen, who are willing to act in the beneficiaries' best interests. A mix of family and professional trustees often works well – bringing personal knowledge alongside expertise and impartiality.
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Get the drafting right. This is where most trust disputes begin. Precise, well-considered terms – naming individuals where possible and defining classes clearly – help prevent later disagreement.
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Use a letter of wishes. Although not legally binding, a letter of wishes tells your trustees how you'd like them to exercise their discretion — for example, prioritising education or supporting a particular grandchild's first home.
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Comply with HMRC requirements. Most trusts must be registered with HMRC's Trust Registration Service, with strict deadlines for both initial registration and updates.
Talk It Through With Us
A trust for your children or grandchildren is one of the most thoughtful pieces of planning any family can put in place — and one of the easiest to get wrong without proper advice. We'd be glad to help you decide on the right structure and set it up to last.