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Age 18 to 25 Trust

Also known as: Young Adult Trust, Transitional Trust, Bereaved Young Person's Trust, Section 71D Trust

Definition

An Age 18 to 25 Trust is a will trust created by parents that allows their children to inherit at a chosen age between 18 and 25, offering favorable inheritance tax treatment while providing protection during young adulthood.

Understanding this trust option helps parents balance the desire to protect young adults from receiving substantial inheritances too early against the need to minimize tax charges.

What Does Age 18 to 25 Trust Mean?

Introduced by Finance Act 2006, Age 18 to 25 Trusts—formally called Section 71D trusts—are created by parents in their wills for their own children or stepchildren. At least one parent must have died, and the beneficiary must receive absolute entitlement (full ownership) on or before their 25th birthday. Critically, these trusts can ONLY be created by parents for their own children—grandparents, aunts, uncles, and other relatives cannot use this trust type.

Parents choose a vesting age between 18 and 25 when drafting their will. Sarah creates Age 18 to 25 Trusts for her children (aged 14 and 11) with vesting at 23. Until then, trustees manage assets and provide for education and living expenses. At 23, each child automatically receives their inheritance, giving them time to complete university before handling substantial sums.

Unlike standard Discretionary Trusts, these trusts face no 10-year anniversary charges. However, exit charges apply when assets are distributed after age 18, calculated at approximately 0.3% for each year after 18, reaching a maximum of 4.2% at age 25. Charges only apply to amounts exceeding the nil-rate band (currently £325,000).

Parents choose this option when 18 feels too young for children to handle large inheritances but want better tax treatment than Discretionary Trusts. Michael and Jennifer chose Age 18 to 25 Trusts with vesting at 23 rather than Bereaved Minor Trusts (vesting at 18). They accepted approximately £3,600 in total exit charges for five extra years of protection.

Common Questions

"What is the difference between a Bereaved Minor Trust and an Age 18 to 25 Trust?"

A Bereaved Minor Trust requires beneficiaries to receive assets at age 18, while Age 18 to 25 Trusts allow parents to delay inheritance until any age between 18 and 25. Both offer favorable tax treatment, but Age 18 to 25 Trusts provide more control. The trade-off: Age 18 to 25 Trusts incur exit charges (up to 4.2%) after age 18, while Bereaved Minor Trusts have no charges at 18.

"What inheritance tax do I pay on an Age 18 to 25 Trust?"

No 10-year anniversary charges apply. However, exit charges apply to distributions after age 18 at a maximum rate of 4.2% (at age 25) on amounts exceeding the nil-rate band (currently £325,000). Earlier distributions have lower rates—1.8% at age 21, 2.4% at age 23.

"Can I set up an Age 18 to 25 Trust for my grandchildren or nieces and nephews?"

No, only parents can create Age 18 to 25 Trusts for their own children or stepchildren under Finance Act 2006. For grandchildren, nieces, nephews, or other young relatives, you need a different structure such as a Discretionary Trust, which has less favorable tax treatment including 10-year anniversary charges.

Common Misconceptions

Myth: Age 18 to 25 Trusts have harsh inheritance tax treatment with 10-year anniversary charges.

Reality: Age 18 to 25 Trusts do NOT incur 10-year anniversary charges. They receive special favorable treatment under IHTA 1984 Section 71D with only exit charges (maximum 4.2%). This makes them far more tax-efficient than Discretionary Trusts, which face both periodic charges and exit charges of up to 6%.

Myth: I can use an Age 18 to 25 Trust to leave money to any young person.

Reality: Age 18 to 25 Trusts can ONLY be created by parents for their own children or stepchildren under Section 71D. Grandparents, aunts, uncles, or friends cannot use this trust type and must use Discretionary Trusts instead, which have less favorable tax treatment.

  • Trust for Children: Age 18 to 25 Trust is a specialized type of trust for children in wills.
  • Bereaved Minor Trust: Similar structure but requires vesting at 18, with no exit charges.
  • Inheritance Tax: Exit charges, nil-rate bands, and exemption from periodic charges apply.
  • Age Contingency: The mechanism for implementing age-based inheritance conditions.
  • Trust Taxation: Age 18 to 25 Trusts have favorable taxation under Section 71D.

Need Help with Your Will?

Understanding Age 18 to 25 Trusts helps you make informed decisions about protecting your children's inheritance while minimizing tax charges. Including the right trust structure in your will ensures your children receive their inheritance when they're mature enough to handle it responsibly.

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Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.