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

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

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

I need to write a will; My daughter will be the executor. My only asset is my residence (not valued but I estimate £400,000).

Do I need to set up a trust for my grandchild? Can I do this if he is a German citizen, or can it be specified in a will that my daughter create a trust for him? How do I do this?

I am disabled and practically housebound. Do I need a financial advisor to sort it out or a lawyer to write a will? VS, by email

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This is Money’s Harvey Dorset responds: I’m sorry to hear about the losses you have experienced.

From what he has told us, the amount he plans to leave to his daughter and grandson is below the level that would make him liable to pay inheritance tax.

Although the threshold is £325,000, she will also benefit from the £175,000 residency nil rate band, plus probably her late husband’s unused tax-free allowance and RNRB. if the conditions are met.

But even if you say your only asset is your home, you should also consider any savings you may have, as well as any pensions that may be subject to inheritance tax from 2027, following changes made in the recent Autumn Budget.

Whether a trust is needed to ensure that you can pass this money on to your grandchild will largely depend on when you expect to leave this money to your grandchild.

Of course, this depends on your own health and age.

Since your grandson is seven years old, it is possible that he will reach 18 before you pass away.

However, if you hope this is not the case, you may need to set up a ‘discretionary trust’ to ensure that the money you leave him is managed by him before he is legally allowed to take control of your finances. .

This is Money spoke to two financial advisors to find out what you should consider to ensure your daughter and grandson can benefit from your wealth the way you want.

Liviu Ratoi, independent financial advisor at Flying Colors, responds: In short, your question is about how to leave your estate to your daughter and grandson after your son’s death.

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

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

In this case 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 nil rate band of £325,000 and a nil rate band residential void of £175,000 as you are passing property to a child/grandchild).

Assuming your late husband made no substantial donation upon his death or seven years prior, then you could transfer his unused allowance. This brings your total inheritance tax relief to £1,000,000.

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

You can also ask your local authority to levy a charge on your home, meaning they would pay for your long-term care initially and recover the cost once you die and the home is sold. This would allow you to pass on any potential increase in the value of your home, minus long-term care costs.

You could also consider a ‘Land Trust’ before showing any signs of needing long term care. This could potentially put the home out of reach of your local authority if, at a later time, it needed long-term care.

It is important to note that local authorities might question this if they thought it was done to deliberately “deprive” your assets, forcing them to fund your care. Your attorney should be able to give you more information about this topic and whether it is right for you.

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

I would reiterate the need for sound legal advice around all of this.

David Little, Chartered Financial Planner at 7IM, answers: Shockingly, 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 that your estate is distributed according to your wishes in the event of your death.

You mentioned that your home is your only asset and therefore a lawyer could meet your needs without needing a financial advisor.

The lawyer 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 should you lose the ability to do so yourself.

I see that your top priority is ensuring that your grandson benefits from your estate after your death. To ensure this happens, it would be advisable to consider establishing a “discretionary testamentary trust” through your will, beginning upon your death, along with a “letter of wishes” to the trustees, notifying them of your instructions for the inheritance.

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

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

It is important to choose your trustees very carefully, as they will be the legal owners of the assets within the trust in the event of your death. You should have at least two trustees controlling your trust and perhaps include a trusted attorney, in case of the 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 estate should something untoward happen in your grandchild’s future life. The trustees will have full control over when and how much will be given to your grandchild, helping to safeguard your estate.

As for your grandson being a German citizen, foreign trusts are generally not recognized in Germany, but Switzerland does.

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