Can I leave money to my German grandson and do I need to set up a trust if he is under 18?

I was widowed and then lost my son, who has a child, and I also have one daughter living in the UK.

Before his death, my son lived in Switzerland with his German wife and my grandson (aged seven), who is a registered German citizen.

I need to write a will – my daughter will be executor. My only asset is my residence (unvalued but I estimate £400,000).

Do I need to set up a trust for my grandson and can I do this if he is a German citizen, or can it be specified in a will that my daughter sets up a trust for him? How do I go about this?

I am disabled and virtually housebound. Do I need a financial adviser to sort it out, or a solicitor to write a will? V.S, via email

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Harvey Dorset, of This is Money, replies: I’m sorry to hear about the losses you have experienced.

From what you have told us, the amount you plan to leave to your daughter and grandson falls below the level that would make you liable to pay inheritance tax. 

Although the threshold is £325,000, you will also benefit from the £175,000 residence nil-rate band, plus probably the unused tax-free allowance and RNRB of your late husband if the conditions are met.

But though you say your only asset is your house, you should also consider any savings you may have, as well as any pension that could become liable for inheritance tax from 2027, after changes made in the recent Autumn Budget.

Whether a trust is needed to ensure that you are able to pass this money on to your grandson will largely depend on when you expect this money will be left to your grandson. 

Of course this is dependent on your own health and age. 

As your grandson is seven, he may reach 18 before you pass away. 

However, if you expect that this won’t be the case, then you may need to set up a ‘discretionary will trust’ to ensure that the money you leave him is managed for him before he is legally allowed to take control of his finances.

This is Money spoke to two financial advisers to find out what you need to consider in order to ensure that your daughter and grandson can benefit from your estate in the way that you wish.

Carry over: Liviu Ratoi says this reader will be able to use their late husband’s unused allowance

Liviu Ratoi, independent financial advisor at Flying Colours, replies: In brief, your query is about how to leave your estate to your daughter and your grandson, following the death of your son.

The easiest way to do this is to contact a reputable solicitor and draw up a will to that effect, and that supersedes any existing will.

Within the will, you can stipulate that the estate is to be divided equally between the two (presuming that is your wish), and you can also appoint your daughter as executor of your estate

In this instance, I would question the need for a trust as the estimated value of the property at £400,000 falls below the inheritance tax threshold of £500,000 (there is a £325,000 nil rate band and a £175,000 residential nil rate band as you are passing property to a child/grandchild). 

Assuming your late husband did not make any substantial gifts on death or seven years prior, then you would be able to carry forward his unused allowance. This brings your total inheritance tax allowance to £1,000,000.

However, because you are disabled and virtually housebound you may need to consider what would happen if you needed to receive long-term care. If you were to do nothing then the local authority could, in theory, force a sale of your house to pay for it, reducing the amount of money left to leave to your daughter and grandson.

You could also ask the local authority to put a charge on your house, meaning they would pay for your long-term care initially and recoup the cost once you had passed away and the house is sold. This would allow for any potential uplift in the value of your house to be passed down, minus your long-term care costs.

You could also consider a ‘Trust for Land’ before you show any sign of needing long-term care. This may potentially bring the house out of the reach of your local authority if you were, at a point later down the line, to need long-term care. 

It’s important to be aware that the local authority could challenge this if they thought it was done to deliberately ‘deprive’ your estate, forcing their hand to fund your care. Your solicitor should be able to provide you with more information around this and whether or not it’s suitable for you.

As far as your grandson’s German citizenship is concerned, there are no issues leaving money to him, but it would be a good idea to check the local tax laws on inheriting money and to know in advance whether there are any tax implications of an inheritance or not.

I’d reiterate the need for solid legal advice around all of this.

Responsibility: David Little says trustees will legally own the assets after your death

David Little, chartered financial planner at 7IM, replies: Staggeringly, more than 50 per cent of adults in the UK currently do not have a valid will, despite a will being the only legal means of ensuring your estate is distributed as per your wishes on death.

You mentioned your home is your only asset, and therefore a solicitor would be able to meet your requirements without needing a financial adviser. 

The solicitor should also draft a ‘power of attorney’ at the same time as your will, allowing a trusted person – perhaps your daughter – to manage your affairs in the event you lose the capacity to do so yourself.

I see your main priority is to ensure your grandson will benefit from your estate after you pass away. To ensure this happens, it would be advisable to consider setting up a ‘discretionary will trust’ via your will, commencing on your death, along with a ‘letter of wishes’ to the trustees, notifying them of your directions for the inheritance.

A discretionary will trust allows your estate, in your case your home or perhaps a cash sum if the house is to be sold, to be placed into trust on death for the eventual benefit of your grandson. 

You can appoint trustees to manage this trust on your behalf, who will be legally responsible for ensuring the assets are managed for the benefit of the beneficiaries of the trust.

It is important to choose the trustees extremely carefully, as they will legally own the assets inside the trust on your death. You should have at least two trustees controlling your trust, and perhaps include a trusted solicitor, in case of premature death of a trustee.

As the trust will be a ‘discretionary’ trust, there is no automatic legal right to the assets for any beneficiary, which can help safeguard your wealth should something untoward happen in your grandson’s future life. The trustees will have full control over the timing and amount to be passed to your grandson, which will help safeguard your wealth.

Regarding your grandson being a German citizen, foreign trusts are generally not recognised in Germany, but Switzerland does recognise foreign trusts. 

However, as you will be setting up a discretionary trust in the UK with no automatic beneficiaries, the fact your grandson is a German citizen and lives in Switzerland will not adversely affect your intentions for him to benefit.