Providing for your children in your will
About this series of articles
This article is one in a series about writing a will. We explain how best to provide for your children when you die, and specifically discuss the Inheritance (Provision for Family and Dependants) Act 1975.
Claims on your estate
You do not have to leave any property to your relatives, let alone equally among any class of relatives such as your children. But the important Inheritance (Provision for Family and Dependants) Act 1975 provides that certain people can apply to the court to claim a share (or larger share than you gave) of your estate. These people are:
- your former wife or former husband or civil partner who has not remarried
- a different-sex partner who has been cohabiting with you for two years immediately prior to your death
- your children
- any person who you treated as a child of your marriage
- anyone who considers that he was dependent on you immediately before your death
What a court will decide is reasonable inheritance depends upon all the circumstances of the individual case.
If you feel there may be conflict between your beneficiaries, it is very useful to place with your will a statement (called a letter of intent) as to how you have reached your decisions.
Such a statement does not of itself defeat a claim, but may well have that effect in enabling your executors to provides reasons for your decisions whether or not a claim comes to court.
Appointing guardians for your children
If you have or may shortly have children, you will of course want to consider who will care for them in the event of both parents dying. Guardianship of children is dealt with by The Children Act 1989. You can appoint a guardian by will only if you have parental responsibility for the child. That means all the legal rights, duties, responsibilities and authority of a parent.
These people have parental responsibility under the Act:
- the mother and father of a child who were married to each other at the time of the child's birth
- the child's mother whether or not she was married to the father at the time of the child's birth
- the father of a child who was not married to the mother at the time of the child's birth but who has been given parental responsibility by a valid parental responsibility agreement entered into with the child's mother
- a person granted parental responsibility in relation to a child by a court
- a guardian appointed by will of the person who has parental responsibility
This last is what we are considering in this article.
The following is also relevant:
- the father of a child who was not married to the child's mother does not have parental responsibility in relation to a child merely by being the father.
- a mother and father who were not married to each other at the birth of a child may enter into a written agreement in a prescribed form to give the father parental responsibility. Alternatively, a father can apply to court for custody of his children.
- a parent who has parental responsibility or a guardian can appoint another to be the child's guardian in the event of that parent or guardian's death. That appointment is best made in a will.
- the appointment of a guardian by will does not reduce or remove the rights of a parent with parental responsibilities (whether the testator before his death or the other parent at any time). It takes effect when such person's rights have terminated.
Appointing guardians is tricky. We cover who you might choose as a guardian in this article. Put simply, the people most likely to give love and care for your children may not be the most careful with the money. But a guardian acts with all the powers of a parent.
Appointing a guardian by will does not make the guardian a trustee. Unless you say otherwise, the executors change hats to become trustees and the guardians look after your children. So the trustees hold the purse strings. So you have to try to find guardians and trustees who will co-operate sensibly.
The second (and related) issue is as to the trust powers you give to the trustees. Net Lawman wills provide (on purpose) a menu of very wide powers, to free trustees to do almost anything that they judge to be in the best interests of the beneficiaries. You may well decide to narrow those powers, either by pruning the paragraphs in the menu or through a letter of intent to both the trustees and the guardians.
Gifts to young people and trusts
There are several issues here, which we will cover individually.
How old must your beneficiary be to make best use of your gift?
Each one of us is unique. There is no knowing what circumstance may affect our lives or how our attitudes may change. So you could argue that whatever age you choose, it will be too soon or too late.
However, we suggest it is indisputable that on average, people tend to be more careful with money, and put it to better use, as they age from 18 into their twenties.
All the Net Lawman trusts empower the trustees fairly widely, but most assume that a beneficiary receives income at age 18, but capital not until age 25. The actual choice is entirely for you, the testator. You can even provide that income be paid to parents of younger children on their behalf.
Furthermore, most trusts provide for the trustees to be able to use income or capital of the trust for 'education and training', a definition which we guess has been stretched to encompass some unusual activities over the years!
Who should hold money for them until they reach the age you specify?
Your options are:
- Give them the money as young as you legally can
- Give the money to their parents (income at least)
- Appoint trustees to hold the money and keep it invested
- For more about trusts and trustees read about their role and powers
Can parents or guardians say no?
If you are gifting to a parent or guardian for the ultimate benefit of a child, then consider whether that person will be able to refuse the emotional demands of their children.
Not many teenagers want to wait until the ripe old age of 25 before they can lay hands on their inheritance, and parents face pressure to fund the educational trip to the clubs of Ibiza, to buy a sports car, or to pay for the other many 'coming of age' rites that teens face.
Guardians can face a greater demand, particularly when trying to balance their own opinions, those that they think the parents would have if they were alive, and those that the child 'thinks' their parents would have had.
You may be able to compromise in your will by specifying in precisely what circumstances the money can be distributed. The more precise you are, the easier it will be for your guardians or trustees to refuse an offer in contravention of your wishes.
Common examples of such occasions and purposes are:
- reach age 18, 21, or 25
- on marriage
- on birth of a child
- on buying a house
- on going on 'expedition', usually abroad
- on attending university or other higher education facility
- on leaving university
Trustees can hold money and property either at their discretion as to distribution of capital and income, or on behalf of some specified beneficiary, either outright, or subject to a condition, such as the attainment of a particular age. The first is a 'discretionary trust'. The second is an 'interest in possession' trust, even while the condition remains unsatisfied.
In law, a beneficiary who has attained the age of 18 can demand to be paid his entitlement as soon as the trust conditions are satisfied, or immediately, if none are specified. However, legal actions to enforce this are few and far between. Eighteen year olds are not likely to sue a trustee aunt or parent!
These are possible advantages of deferring payment through a discretionary trust:
- to prevent a young person who has never previously had access to a large sum of money from spending it recklessly.
- to prevent a large amount of cash falling into the hands of an ex-spouse, through the divorce courts. Because there is no interest in possession, a beneficiary cannot be said to “own” any part of the fund. Accordingly, none of it can pass to an ex- spouse (or trustee in bankruptcy). However, the divorce judge, in considering the division of other assets, will take account in broad terms of the likelihood of the beneficiary receiving a distribution in the future.
- to provide flexibility and freedom to the trustees to use the money in what they see as the best interests of the children. Capital can be distributed over many years.
And a possible disadvantage:
Trusts are no longer subject to the tax advantages of former years. Successive chancellors have tightened the tax net. You must take professional financial advice on how a trust will be taxed before you set it up. For example, income in discretionary trusts has been taxed at the upper income tax rate without allowances.
We recommend that you read about Will trusts next.
We fervently believe that everyone should be able to make a will. So as to encourage you to do so, we provide some of our more straightforward templates (likely to be suitable for most people) absolutely free with no catches or conditions.
Just visit our library and choose the most suitable in this list. We offer nine in total that together cover thousands of possible variations of wishes. There will be one to suit your situation. If you are in doubt as to which to choose, our article here will help you to decide.
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