11 Aug 2022

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Will trusts by Lynch Solicitors

Will trusts by Lynch Solicitors

Will trusts by Lynch Solicitors

We have been discussing Wills, Enduring Powers of Attorney, Assisted Decision making agreements and the Advance Healthcare Directive over the past couple of articles; let me remind you what happens if a parent dies and has not made a Will.

  • The surviving spouse will inherit two-thirds of the estate (or the entire estate if there are no children).
  • The surviving children are entitled to one-third of the estate between them.
  • When this happens, and it often does, the spouse and children become entitled to shares in the family home.
  • If both parents are deceased, the children will be entitled to the entire estate, divided equally between them.

Why would a parent make a will if they will be entitled to a share of intestacy anyway?

The main reasons for parents, particularly where they have young children, to make a Will would be to make provision for guardians of their own choice, to make sure that each child is adequately provided for depending on their circumstances and finally, to ensure that you have the right people in place to manage the assets over several years if both parents pass away when the children are quite young.

Is there a particular type of will that parents make to ensure that the children's welfare is taken care of and, of course, financially taken care of?

The recommended Will for parents of young children is a Will Trust. The usual form of Will Trust has some basic features that can be developed or changed again depending on the family's circumstances.

First and foremost, like any Will, the Will Trust will appoint executors. In this instance, they will also act as Trustees.

If a trust becomes active, there will be tax implications to be considered. In the case of a child with special needs, it is worthwhile considering setting up a discretionary Trust with the child as the sole beneficiary.

Consideration has to be given to the tax implications of the Trust. It is worthwhile to seek specialist tax advice before establishing a trust.

How would you distinguish those roles? Or what is the difference between acting as an Executor and Trustee?

The role or function of the executor is to take all the necessary steps to obtain the Grant of Probate.

The role of the Trustee takes over once the probate has been granted, and the Trustee manages or looks after the assets until the beneficiaries reach the age when they become entitled to the assets in their own right, e.g. 21 or 23.

How do people choose Trustees?

I always say to my clients – choose someone that you know, like and 'trust'. 

If anything happens, you will be handing over responsibility and authority to them to look after your assets until your children are of a certain age.  I would often say to people, make sure that you are happy that that person can make the right
financial decisions for your children – they, after all, will have control of the purse strings.

Once the Trustee is decided on, what next?

The next major decision that has to be made is the appointment of guardians for your children that are under 18.  I can appreciate that this is probably one of the most challenging decisions that any parent will have to make or face but against that, the consequences of not doing so make it even more critical for parents to take the step.

How do you distinguish between the role of Trustee and Guardian?

It is straightforward that the Trustee can be likened to the money manager, and the guardian's primary concern is the welfare of the children.

What advice do you give to parents trying to decide upon a Guardian?

Every situation is different, and so the advice that I will give will depend on the circumstances, but generally speaking, I would make the following points:

  • Make sure that your children know the potential guardians with whom they have a relationship. You don't want your guardians to be strangers to your children.  This might be very difficult when children are very young and have not formed strong relationships – but as the years go by, this will change, and it will always be an option to change the Will.
  • If possible, try to choose a guardian that lives close by so that the children can stay in their school and maintain their friendships.
  • Please sit down and discuss the situation with the potential guardian and make sure they are happy to act as guardians.
  • Remember that when you appoint someone as a guardian, that does not mean that they are automatically entitled to custody of the child or children. By custody, I mean the day-to-day care and control. If, as a parent, you want someone else to look after the children daily, then it is essential that you are explicit about that.

Once parents have decided upon Trustees and Guardians, where do you go?

After that, you get into the actual creation of the Trust and specify the powers you are giving to the Trustees.

The creation of the Trust, at its simplest, happens when the parent directs in the Will that their assets are given to the Trustees and are to be held by them for the benefit of the children. Once the children reach a certain age, the trustees must hand over the trust property.

What age do parents typically specify for their children to be for the handover of the property to take place?

In most cases, parents will say 21 or 23; again, it largely depends on the circumstances of each case, such as the amount involved and the child's maturity.

Does that mean that the money or property is locked away until the children reach a particular age?

No, the guardians would be in a challenging situation if the assets were untouchable until the children reached 25 or 30.  The trustees can pay out a portion of the capital or the estate or some of the income (deriving from the assets) if required for the children.

I often use the example of school or college.  If the guardians need money to get the children back to school items or money for college, then the trustees have the power to make a payment out to fund those expenses.

While Trustees can also act as guardians, it might be worthwhile assigning the roles to different people so that you don't have a guardian with a potential conflict of interest if they have to make financial decisions.

What powers do the Trustees have over the assets and money?

There is little doubt that the Trustee takes on a very onerous task, and they must act in good faith and make sure that they are not reckless or dishonest in their dealings with the assets.

  • The trustees have the power to make investments and to change those investments.
  • Trustees have the power to sell assets.
  • Trustees also, we said earlier, have the power to make payments out of the estate's capital. Those might be to cover educational expenses or medical expenses.
  • Carry out the appropriation of assets to beneficiaries, which is the distribution of assets according to their circumstances.  An example of how this might work would be where you have an estate made up of cash and a house. Take this situation where there are two children, and the beneficiaries decide to give the home to one child and the cash to the other who is not living locally and has no interest in the house. I am assuming, for this example, that the house and money are of equal value.
  • You might give broad powers, e.g. to carry on a business and appoint managers for the business.

What happens in circumstances where you have a child with a disability and will never be able to manage their affairs?

In that situation, a parent would be advised to set up a discretionary trust will. 

The Will directs the Trustees to use the money or assets to maintain the child or children, but the Trustees have absolute discretion on how and when the money is used, if at all. The beneficiary of the Trust will never become entitled to the funds or assets in this case.

So where do you go from here - Estate and Succession planning?

While making a Will is certainly the first step in planning ahead, there are other issues to consider.

Estate planning is planning the transfer of assets to the next generation. For instance, you may wish to transfer your business or farm to one of your children who is working in the business or on the farm. 

You may want to give your children a benefit now as they start out in their adult lives to help get them set up.

For further advice or if you wish to discuss any other legal area please contact or telephone 052-6124344.

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