Parents usually want to leave their money to children and grandchildren in their Will. There are different ways to pass on wealth and we take a look at the some of the options and implications.
It is important to think carefully about how you want to leave your money when making a Will. In some cases, passing on money can cause difficulties that may have been unforeseen. By speaking to an expert Wills lawyer, you will have the chance to talk through your situation and make sure that you make the best possible choices for you and your family.
How to pass on money to your chosen beneficiaries
There are several ways of passing money to your loved ones. Some examples include, making an outright gift, a gift that will be received when they reach a certain age, or leaving money on discretionary trust.
Outright gift of money:
An outright gift in a Will means that a beneficiary would become absolutely entitled to the money or asset you have gifted to them, as soon as you pass away. Although, in practical terms they will not usually receive the gift until the estate administration has been concluded. If the beneficiary is under 18 at the date of your death, their gift would be held in trust until they reach that age. This means that someone else (a Trustee) will be responsible for looking after the money or asset, until the child’s 18th birthday).
There can be some drawbacks to making an outright gift. There is a risk that a fairly young person could inherit a very large sum of money, possibly before they have the maturity to appreciate it and manage it well.
It could also be that the person who inherits the money or asset could lose it in a divorce, as it may be considered a matrimonial asset and shared with their spouse on separation. Similarly, if the beneficiary is vulnerable, loses capacity or has significant struggles with addiction or finances, then their inheritance may be lost to them through various means.
Money gifted at a specified age:
It is open to you to specify the age at which you would like a beneficiary to inherit money from your estate. This is particularly helpful for those wishing to leave money to grandchildren, or other young people. You can choose the age you believe is right for your family or the beneficiary. Common ages that are used are 21 or 25. The money left to the beneficiary will be held on trust until they reach the specified age.
This can prevent money from being spent unwisely by a young person who has not built up the experience to deal with it responsibly. Depending upon the nature and terms of the trust, it can be open to the Trustees looking after the money to release funds in the meantime if they believe that it is needed and will be well spent.
There can be adverse tax implication of leaving a gift on trust for someone until a specified age, and for that reason it is always sensible to take advice from a expert Wills, Trusts and Estates lawyer when making your Will, to ensure you fully understand all the legal, tax and practical implications of making such a gift.
Discretionary Trust:
A Discretionary Trust can be set up in a Will to hold money and other assets for multiple beneficiaries. The key feature of a Discretionary Trust is that no single beneficiary is absolutely entitled to any of the trust assets. Instead, there is a ‘class’ of beneficiaries, all of whom could benefit, but none of whom are entitled to.
The Trustees will manage the trust fund, to include taking advice upon how to manage the trust assets, and investing funds as they consider appropriate. The person making the Will can leave a letter of wishes with guidelines for how they would like the trust to be run, such as the types of investments they prefer and what they want the primary focus of the trust to be. For example, they may want their widow/widower to be the main beneficiary during their lifetime, or for money to be released to the beneficiaries to help with education, the purchase of a car or a deposit for a home.
A Discretionary Trust can protect money from being spent unwisely. It also protects the assets as the beneficiaries’ inheritance cannot be lost in a divorce, bankruptcy, or through any other means, such as if one of the beneficiaries struggles with addiction. The money can only be dealt with by the Trustees, who have control of how it is invested and spent.
Estate planning
Deciding where and how to leave your money can be complicated and it is always sensible to take expert advice before making a Will. Whilst a Will might seem like a simple document, the law on this area is complicated and there are many pitfalls and complications that people are generally unaware of. By carefully planning how you will pass on your estate, you may be able to mitigate Inheritance Tax and ensure that future generations have the support they need.
Contact us
If you would like advice about estate planning or making a Will, please contact us on 01252 733770 or email us at privateclient@baker-law.co.uk to make an appointment to see one of our expert Wills and Trusts lawyers at our Farnham based office.
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