Next generation wills
Allowing your wealth to pass outright to a beneficiary, whether that person is a spouse, partner, a child or other relative means that you lose control over how your estate is used.
Outright gifts place the asset in the estate of the beneficiary and the value of the gift may be subjected to one of a number of vulnerabilities:
- Children or grandchildren without responsibility who may squander the money
- Second marriage that may dilute your estate down a new line of family you have no knowledge of
- A beneficiary that has poor financial management and may be exposed to bankruptcy
- The cost of providing nursing or residential care
- Influence from others who may not have been provided for in your will
- Inheritance tax in the next generation of family
There is a way to reduce the impact of these issues;
A discretionary trust
This type of trust has the advantage of including all the people you may want to benefit but the final decision to distribute funds is taken by the trustees you have chosen. They are able to witness the circumstances of the beneficiaries that are not at the moment foreseeable.
We can discuss how we can reduce your own inheritance tax exposure but you should also consider the impact of inheritance tax being charged again on your wealth if your chosen beneficiaries inherit your estate outright.
Thinking of the wealth of the beneficiaries is important to determine whether a trust is a good vehicle to pass your estate into. Using this will avoid your estate adding to another estate that may already be in the inheritance tax trap.
The trustees are very important and therefore you must choose carefully. Frequently an independent professional trustee is appointed along with a friend or family member.
Maintaining independence is important to ensure your wishes are carried out, so it is vital that a conflict of interest does not arise. You can find more about trustee duties here.
Letter of wishes
This is your personalised letter that you leave addressed to the trustees containing your guidance about who you would like to benefit, by how much and when. They are not legally bound to follow the letter but it is influential and an important element to make it known why you have included a trust.
It is a very flexible way of dealing with your estate succession planning because if any of your wishes change you can update the letter of wishes rather than having to redraft your will again.