Estates In Scotland: Key Considerations For Minor Beneficiaries

The possibility of minor beneficiaries (those under the age of 16) in Scotland receiving an entitlement from an estate brings with it a number of considerations. Ideally, these can be addressed and dealt with before a client has died, allowing for appropriate planning to be done, including adding trust arrangements to their will to postpone vesting of inheritance until a suitable age is achieved by the beneficiary. However, even if there are trust arrangements in place, executors and family members should be aware of the legal and practical issues involved in protecting a minor beneficiary’s entitlement in an estate.

Who Acts on Behalf of a Minor?

A minor does not have capacity to give instructions regarding their inheritance or other entitlement, and cannot manage the administration of an estate personally. Where an entitlement arises in favour of a minor beneficiary, a parent, guardian or another appropriate adult will need to act on the child's behalf.

Legal Rights and Minor Children

Legal rights for children of a deceased arise in both testate (where there is a will) and intestate estates, regardless of their age. As a result, all estates in Scotland where there are children will require legal rights to be considered as a minimum requirement. Depending on the nature and value of the estate, executors should identify any potential legal rights claims and ensure that minor beneficiaries are properly represented when decisions are being made regarding those rights. Payment and management of those legal rights will also depend on their value, as discussed further below.

Children Under Intestacy

The most common situation arising where a minor beneficiary has an inheritance due to them immediately is under intestacy. After any surviving spouse/civil partner's prior rights and legal rights have been satisfied, children are the first ranked class of relatives entitled to inherit the remaining “free estate” along with their own legal rights. Depending on the family circumstances and the size of the estate, they may inherit all or part of the estate. This may also involve the appointment of an executor-dative to administer the estate itself as their parent/guardian.

Conflicts of Interest

A common challenge arises where the same individual acts in multiple capacities, for example as executor, beneficiary and parent or guardian of a minor beneficiary. Executors owe duties to all beneficiaries and must ensure that the interests of a minor are protected throughout the administration of the estate. Potential conflicts should be identified and managed carefully to avoid future disputes.

Payment of a Minor's Entitlement

If legal rights are being claimed on behalf of a minor child, or where a minor beneficiary has a direct entitlement to an inheritance either under intestacy or a will not including trust arrangements, the executors are required to transfer the funds to the minor’s parent or guardian. However, this is subject to the obligation of executors to apply to the Accountant of Court for a direction regarding the administration of the funds if they exceed the value of £20,000. Depending on the outcome of such a direction, the funds may then be held or administered by a parent or guardian, the Accountant of Court or a Judicial Factor until the minor turns 16. On that basis, where the entitlement is over £20,000, there will at least be an independent review of the most suitable option for the management of the funds. However, as soon as the minor turns 16, there are no further safeguards.

Post Death Discharges and Variations

There are, on occasion, situations which arise that can prompt decisions to be made after death on behalf of a minor which can alter or affect their entitlement. The discharging of legal rights by a parent or guardian on behalf of a child is competent under the Children (Scotland) Act 1995 if the action is deemed to be done by a “reasonable and prudent person” and if it will “safeguard and promote the child’s health, development and welfare”. In doing so, that parent or guardian is accepting the risk that any future challenge by the child, on the basis that the decision was prejudicial to their interests, would be made personally against them and not the executors.

The entering into a Deed of Variation by a parent or guardian on behalf of a minor child is also something occurring in practice. The impact of these Deeds of Variation is wide ranging, from adding a trust structure into a will or intestate estate for the inheritance to be held until a certain age, to redirecting the entire entitlement to a surviving parent for inheritance tax planning purposes. These decisions on behalf of a minor child are made under the same basis as the discharging of their legal rights. However, depending on the scope of the variation and final outcome for the child, whether or not the decision is ultimately prejudicial will turn on the facts of each individual case.

Any decisions which affect the minor’s entitlement in any way must therefore be considered carefully before being made.

Final Thoughts

The presence of minor beneficiaries can add complexity to the administration of estates in Scotland. Early consideration of capacity, representation, safeguarding and the management of funds can help avoid difficulties and ensure that a child's entitlement is protected until they are able to deal with it themselves.