Sometimes — But It Must Be Done Properly
After the first homeowner dies, their protected interest is held within the Homeowner Protection Trust.
The survivor may have extensive rights to:
- live in the property;
- move house;
- benefit from trust income;
- and perhaps receive capital where the Will allows.
But the protected capital does not necessarily belong to the survivor outright.
So if Susan says:
“The children could do with some money now. I’ll give them Dad’s inheritance early.”
the first question is:
Does the Will actually allow that?
A Simple Example
David and Susan own their home.
David dies first.
His Homeowner Protection Will protects his interest ultimately for their children, Emma and James.
Susan continues living in the property.
Ten years later, Emma wants £40,000 towards a house deposit.
Susan would like David’s trust to help.
Can it?
Potentially.
But Susan cannot simply withdraw £40,000 from David’s protected inheritance herself.
The trustees need to consider:
- what David’s Will says;
- what powers they have;
- Susan’s existing rights;
- Emma’s eventual entitlement;
- James’s position;
- and any tax consequences.
The Survivor Does Not Own the Trust Capital
This is the starting point.
Susan may currently benefit from David’s trust.
But that does not automatically give her authority to say:
“Give £50,000 to Emma.”
The trustees control the trust property and must follow David’s Will.
Susan cannot give away something which does not belong to her outright.
Can the Trustees Release Money Early?
Potentially, yes.
Many Wills give trustees powers to advance capital to beneficiaries before they would otherwise become entitled.
There is also a statutory power of advancement under the Trustee Act 1925, subject to the terms of the trust and the rights of anyone with a prior interest.
The important point is:
the Will must be checked first.
The Survivor’s Rights Still Matter
Suppose Emma and James eventually inherit David’s trust, but Susan has the right to benefit from it for life.
Giving Emma money early must not improperly prejudice Susan.
That is particularly important if most of the trust is tied up in Susan’s home.
An early payment might reduce:
- Susan’s security;
- money available towards a replacement property;
- or resources which may be needed later.
The trustees have to consider the trust as a whole.
What If the Trust Has Cash or Investments?
That can make things easier.
Suppose Susan has downsized and David’s trust now consists of:
- £150,000 invested in her replacement home; and
- £100,000 held separately in investments.
The trustees may have more flexibility to consider helping Emma or James from the £100,000.
But they still need authority under the Will or trust law.
Can Part of the House Be Given to a Child?
Potentially, but considerably more care is needed.
Transferring an interest in property can create issues involving:
- Capital Gains Tax;
- Land Registry;
- mortgages;
- trustee duties;
- future sales;
- and family disagreements.
It might also reduce the survivor’s security.
Giving somebody cash is not necessarily the same thing as transferring part of the home.
What About the Survivor’s Own Money?
That is different.
Susan remains free to deal with property which belongs to her personally.
The important distinction is:
Susan’s own property
Susan decides.
David’s protected property
The trustees must follow David’s Will.
Could the Trust Help a Child Buy Their First Home?
Potentially, yes.
Helping a beneficiary establish themselves in life can be the sort of situation where trustees consider using a power of advancement.
But the child cannot normally demand the money simply because they would like it.
If Emma’s inheritance is not due until Susan’s rights end, Emma usually has no automatic right to receive it early.
The trustees decide whether an early payment is appropriate.
What Should the Trustees Consider?
Before releasing capital, they might ask:
- What does the Will permit?
- How much money will remain?
- Could Susan need it later?
- Would the payment prejudice Susan?
- Is the request reasonable?
- What is James’s position?
- Should any early payment reduce Emma’s final inheritance?
- Are there tax consequences?
- Is Emma financially vulnerable?
- Would a loan be more appropriate than a gift?
The trustees should keep a record of why they reached their decision.
Do All the Children Have to Receive the Same Amount?
Not automatically.
Emma might need help with a house deposit while James is financially secure.
That does not necessarily mean James must receive exactly the same amount at the same time.
But the trustees need to consider:
- what the Will says;
- how each beneficiary’s interest is structured;
- and how an early payment affects their eventual entitlement.
Could the Trustees Make a Loan Instead?
Possibly, if the Will gives them suitable powers.
For example, rather than giving Emma £40,000 outright, the trust might lend her the money.
The trustees would then need to decide:
- whether interest is payable;
- when it must be repaid;
- whether security is required;
- what happens if Emma dies;
- and how the arrangement fits their trustee duties.
Family loans involving trust money should not be left as informal agreements.
What If the Survivor Needs the Money Later?
This is one of the risks of giving money away too soon.
Suppose substantial amounts are advanced to the children.
Five years later Susan needs to:
- replace the roof;
- buy a more suitable bungalow;
- adapt the property;
- or meet another need for which the trust could otherwise have helped.
The money may already be gone.
The trustees need to consider Susan’s future as well as the children’s needs today.
Could There Be Tax Consequences?
Yes.
A substantial advancement or appointment of trust capital can potentially have:
- Inheritance Tax consequences;
- Capital Gains Tax consequences;
- and other trust administration implications.
It should not simply be assumed that there is no tax because the money is staying within the family.
Professional tax advice may sometimes be needed before substantial trust capital is released.
What If Everybody Agrees?
Agreement can help, but it does not automatically remove:
- trustee responsibilities;
- tax consequences;
- the terms of the Will;
- or the rights of other beneficiaries.
There may also be future or substitute beneficiaries whose interests need to be considered.
So even unanimous family agreement does not mean trust money should simply be divided informally.
What About a Deed of Variation?
A Deed of Variation is a different mechanism.
Within certain circumstances following a death, beneficiaries may be able to agree to vary how an estate passes.
The source page notes that particular tax treatment for qualifying variations generally requires the variation to be completed within two years of death.
That is different from trustees exercising powers contained within an ongoing trust.
What If a Child Is Divorcing or Bankrupt?
That may actually be a reason not to release their inheritance early.
Once money is paid outright to the child, it becomes their asset.
It may then become exposed to:
- creditors;
- bankruptcy;
- relationship breakdown;
- poor financial decisions;
- or other risks.
Leaving capital within the trust may sometimes provide greater protection.
[Can a Homeowner Protection Trust Protect Against Bankruptcy or Creditors? →]
Don’t Treat the Trust Like a Family Bank Account
This is perhaps the simplest rule.
After David dies, his protected inheritance is trust property.
It is not:
- Susan’s savings account;
- Emma’s future bank account;
- or a pot of money the family can casually divide whenever everyone agrees.
Trustees have legal responsibilities.
Significant payments need to be properly considered and documented.
But Protection Does Not Have to Mean Inflexibility
A trust could last for 20 or 30 years.
During that time:
- children may buy homes;
- grandchildren may need help;
- beneficiaries may become vulnerable;
- and the survivor’s circumstances may change.
That is why sensible trustee powers can be valuable.
The aim should be:
protection with sensible flexibility.
In Simple Terms
Can the survivor simply give away the deceased person’s protected inheritance?
No.
Can trustees sometimes release money early?
Yes.
Does the Will need to be checked first?
Absolutely.
Could an early payment reduce the child’s eventual inheritance?
Yes.
Could there be tax consequences?
Yes.
Could a loan sometimes be used instead?
Potentially.
Should trust money be handed out informally?
No.
The Better Question
The question is not:
“Can Susan give the children Dad’s money?”
It is:
“Do the trustees have power to use some of the protected capital now without prejudicing the survivor or defeating the purpose of the trust?”
That is the right basis for deciding.
[Find Out If a Homeowner Protection Will Is Right for You]
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Can the Survivor Give the Children Their Inheritance Early?
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Can children receive money early from a Homeowner Protection Trust? Learn about trustee powers, early inheritance, loans, the survivor’s rights and possible tax consequences.