Wills for Couples with Young Children

By Steve Meredith - Tax Consultant

When couples have young children ie teenagers and pre-teens it is always better to be safe rather than sorry when it comes to their Wills. This is because it is simply impossible to know at that age whether children are likely to be sensible with money when they get to 18, 21 or 25, the common trigger ages of inheritance. Certainly 25 is a much more sensible age for inheritance than 18 but it may still not be the right age, especially if either a lot of money is involved or the child is still pursuing the follies of youth.

 While on first death, the Wills can, in the case of married couples and civil partners, be kept simple with everything passing to the survivor. However, in the unfortunate event of both parents dying while their children are still young, in our view it is much better to include in the Wills a comprehensive trust for children on second death. This will protect their inheritance against fortune hunters and avoid the risk of them squandering it as a result of getting in with the wrong crowd or through lack of maturity.

 The Will Trust will take the form of a Discretionary Trust and the couple will need to appoint Trustees to administer the Trust. Effectively, in the event that both parents die, the Trustees will be stepping into their shoes and, in conjunction with any testamentary guardians appointed, will be making financial decisions about how best to bring the children up eg about the payment of school fees, University tuition fees, the payment of fees to obtain professional or technical qualifications eg to train to be a doctor or a lawyer etc.

 The choice of Trustees is absolutely fundamental as they will have a wide discretion about how the Trust monies should be best used for the benefit of the children. The parents will need to think long and hard about who they should appoint as Trustees. The Trustees must be able to work well together, have a reasonable understanding of the children and their financial needs – this will be particularly important if any of the children is handicapped or has learning difficulties.  The Trustees should also be prudent and reasonably financially astute although they can, and should, obtain independent professional financial and investment advice about the Trust monies eg from an Independent Financial Adviser (IFA) or stockbroker. 

 It is important that the parents ask the persons that they wish to take on the role of Trustees to confirm that they are willing to undertake these duties as they can be onerous and continue for many years particularly if the children are very young when their parents die. The Trustees can be other family members, though perhaps better to appoint siblings rather than parents if the latter are elderly.  Alternatively they can be friends or professionals or, perhaps best of all, a combination of all 3. Ideally both sides of the family will be represented.  As mentioned above, ideally the Trustees who have been appointed will get on with each other and will not squabble but, in the event of a disagreement, it is possible to provide in the Wills that the majority decision of the Trustees will prevail or that one of them is to have a casting vote.. This will prevent deadlock as otherwise financial decisions must be unanimous.

 No doubt couples will invariably appoint Trustees who know them and their children well and have probably got a reasonable idea of how they would like the children to be brought up if they are no longer around.  However, in our view, it is most important, if not vital, that, at the same time as they make their Wills, the couple also write a Letter of Guidance to the Trustees setting out their instructions as to how they wish them to exercise their wide discretionary powers over the Trust monies for the benefit of the children.

 The Letter of Guidance is important not only because the Trustees will then have a good idea of how to act in any given situation, but also in case a child challenges the authority of the Trustees, which is not uncommon as they get older. A child may, for example, on attaining 21 or 25, demand that the Trustees hand over their share of the Trust monies.  In those circumstances, the Trustees can point to the Letter of Guidance which will generally give the Trustees a discretion to continue to hold monies in trust indefinitely for any child and can show the child or children their parents’ wishes set out in black and white..

 Such a Letter of Guidance is not binding on the Trustees, who retain an overriding discretion (this is desirable because it is impossible either to predict how a child may turn out eg they may have health issues, or to foresee every situation that may arise).  For this reason it is important that any Trustees appointed must be reliable. A professional Trustee will of course generally feel obliged to follow the instructions contained in any written Letter of Guidance, save in exceptional circumstances.

 A Letter of Guidance can take many forms and can be specifically tailored to the particular couple’s wishes but will generally include the following:

  • A declaration that the children should benefit equally but also containing flexibility for the Trustees to treat the children differently in defined circumstances eg because of concerns about financial instability eg gambling or extravagant tastes, the possibility of divorce, ill-health eg due to drink or drug use or otherwise or other personal or financial problems
  • That Trust monies should be used for the children’s education, maintenance and benefit while they are still in full time education and that significant capital should not be advanced to them during that time
  • That, even once they are settled in careers and relationships, they should not inherit their share of the Trust monies in one lump sum but in instalments over time
  • Ideally capital should be released for a particular purpose ie the purchase of a (sensible!) car, to get a foot on the property ladder, or pay privately for a medical operation
  • Guidance as to what should happen to their share of the Trust monies in the event that the child dies – this is likely to depend on whether they have children themselves
  • Guidance as to what the Trustees should do with the Trust monies in the event of family wipe-out ie all the children and any grandchildren have died. Obviously this is more likely to occur where there is only one child of the family. In those circumstances so-called ‘default beneficiaries’ can include wider family members, close friends or charities.

 If you have young children and think that the approach suggested in this article might work well for you and your children please contact the author, Steve Meredith, of our Private Client Department. Steve has specialised in Trusts and Tax work for more than 20 years and has wide experience of how Trusts work in practice as he is a Trustee of a number of large family Trusts dating back to the early 2000’s. 

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