How to look after your vulnerable child after you die?
It is a sad but unfortunately true that some families have children who, regardless of their age, are vulnerable. This can be for a diversity of reasons, varying from physical and or mental disability to drug or alcohol addiction to simply being subjected to the negative influence of other people.
1 – Don’t bury your head in the sand
It is important to take legal advice in respect of an appropriately drafted Will and your estate planning in general.
While it is true that dying intestate (i.e. without a Will) may not always be disastrous, your spouse may not get your whole estate if you die first. This could result in some of your estate passing on to your vulnerable or disabled child with the following consequences:
a) Your child may lack the capacity to look after their inheritance and may not have the ability to manage their finances; b) your child would likely be at an increased risk of financial abuse; c) your child may lose their entitlement to means- tested benefits or other government funding if they have a physical and/or mental disability
Preparing an inappropriate Will may also result in the same undesirable consequences as highlighted above
2. Dot i’s and cross T’s
Sometimes clients ask whether it may just be simpler to leave all their child moneys to a sibling or friend to look after it for their benefit. This type of “informal trust” is highly inadvisable as it exposes your child’s inheritance to a multitude of risks such as:
• your trusted person misusing your inheritance; • the funds passing on to your trusted person’s own beneficiaries when they die (as it would be strictly part of their estate); • the funds being subject to various 3rd party claims arising such as on a divorce or bankruptcy of your trusted person.
The right answer is to ensure you prepare a will appointing the right people dealing with your estate in the right way.
3. What type of Will is most appropriate to look after my vulnerable or disabled child?
Discretionary Trust It this type of situation’ leaving your child’s inheritance into a trust in your will (please see our previous post for an explanation of family trusts here) for their benefit is a wise way to prevent all of the problems identified above.
This is because: • The child and other beneficiaries of the trust do not have legal title to the assets but are the only ones entitled to its beneficial interest. Hence a “layer of protection” is added to the assets in terms of entitlement to state welfare and other threats such as financial abuse by 3rd parties. • The trustees have the legal title to the assets but are not allowed to benefit from the assets. They are also bound by the terms of the trust and legal rules and obligations imposed on trustees generally.
Trustees also have a duty to take your wishes into account. Therefore, we always recommend that you prepare a detailed letter of wishes setting out how you anticipate your estate will be managed/distributed after you die and how specific circumstances (which may be a particular concern for you) should be dealt with.
It is usually advisable to appoint more than one trustee and that one of the trustees is an independent and/or professional trustee.
Flexibility is also a major benefit of this type of arrangement as a discretionary trust allows your trustees to consider all the circumstances at the time of dealing with your estate such as: taxation law; the needs of your beneficiaries; the relationships of your beneficiaries etc and ultimately, ensure your wishes are carried out in the most appropriate way.
4. Look at the bigger picture
Depending on the nature and value of your estate, there could be inheritance tax (IHT) or other tax implications in setting up a trust. These are highlighted in our previous post on flexible trusts, but the key is, as always, to take expert legal advice to help you make a fully informed decision.
At Solomons Solicitors we specialise in all aspects of estate planning and always advise clients on a case by case basis, rather than using a “one size fits all” approach. Please contact one of our experts: Paul Solomons or Alexandra Livesey for a free no obligation consultation on 01202 802807