Will states that cash amount will be paid to grandchild PROVIDED they attain the age of 21. Grandchild was 17 at the point of death. No other direction is given in the will. I understand this is a contingent interest. Income is being produced on the sum. For income tax purposes should the income be taxed to disc rates of tax until the grandchild reaches 18 and then at IIP rates thereafter (with the grandchild being entitled to income) Thanks
If the grandchild was 17 at the time of death, will any income have been paid to them (or for their benefit), or property appropriated for their benefit before they attain(ed) 18?
The income of the estate is not subject to tax at the trust rate, it is only when it arises to the trustees holding for the minor that it is taxable at the trust rates. Arising to the trustees will also include any income passed to the trustees by the executors, which will escape the trust rates if due to the trustees, or paid over to them only once the grandchild has attained age 18.
The above comments are on the understanding that the provisions of s.31 TA 1925 have not been varied, and that the grandchild’s entitlement is not to a specific legacy/devise, to which the doctrine of relation-back would apply.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thanks Paul, The estate I believe wasnt wound up until the grandchild reached 18 at which point the sum was passed to the trustees and so actually there will be no trust income whilst a minor. The amount to the grandchild was a legacy of a fixed amount rather than a share of the residue and so I assume there would be no estate income due to the trust. There is no mention of S31 in the will. I assume I can therefore treat all income as IIP rate and if mandated directly to the beneficiary we can dispense with the need for a trust return. Just 1 question for my own interest - if the grandchild was already 18 at death and the will is contingent on reaching 25 would that then be disc as S31 only refers to minority beneficiaries?
Provided that the provisions of s.31 have fallen away, then yes the trust should no longer be “discretionary” once the beneficiary is no longer a minor. However, the will might extend the application of s.31, possibly through the incorporation of STEP Special Provisions, or by providing for the accumulation of income until age 25.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals