2010 - 2017
Making a Will is not about wealth it is about making sure that what you want to happen to your estate does happen. It gives you the opportunity to specify such things as who will administer your estate, who will care for your children and who will receive specific items of your property.
Fred and Mary have two children, Charles and George. Due to a head injury sustained during a childhood misadventure, George suffers from a certain degree of learning difficulties and cannot really be given half his parents' estate to deal with.
Fred and Mary, therefore, decide to leave everything to Charles as they know he can be trusted to look after his brother. Initially everything goes smoothly and Charles gives George money when he needs it and makes sure he is taken care of. Unfortunately, Charles is later made redundant from his job.
His industry is in decline and new job opportunities are few and far between, with fierce competition for any advertised vacancy. Charles struggles with his own finances and rising debts. Eventually, he is forced into bankruptcy and what funds he has left go to his creditors. As a result, George is also left in severe difficulties.
The problem in that example would have been avoided had a trust been set up for George in his parents' wills.
Other potential difficulties include a falling out between the children and the possibility of the able-bodied child dying before the other one without making adequate provision for him.
There are various types of trust arrangements that can be set up in this sort of situation and it is well worth talking them through with a professional.
There is a category of trust known as a disabled rust, which attracts certain tax advantages, and this may suit your circumstances. Otherwise, the first choice to make is whether you wish to create a lifetime trust (an inter vivos trust) or to create a trust in your will (a will trust).
If you set up a trust during your lifetime, it need contain only a nominal amount of money.
You then leave the trust an amount of money in your will. Mencap have a scheme whereby you pay for the setting up of a trust of which they are trustees. On death the money you wish to leave your child is paid into that trust and administered by them. The disadvantage of setting up an inter vivos trust is that it must be registered with the Inland Revenue's trust division immediately so that some time and possible expense is taken up each year dealing with a tax return.
With a will trust, the terms of the trust are contained within the will itself. The choice then becomes whether to make it an interest in possession trust or a discretionary trust. The essential difference is that with an interest in possession trust the beneficiary has 'the immediate right to the immediate income' (IRC v Pearson).
In contrast, with a discretionary trust there is a class of beneficiaries who have no immediate entitlement to anything. The trustees then allocate funds as and when they see fit. It is usual to issue some kind of guidance to the trustees by way of letter or memorandum with the will but this must in no way fetter their discretion or the Inland Revenue will try and argue that the trust is really an interest in possession type.
If the problem is gambling or drug addiction rather than a mental or physical illness, a simple protective trust may fit the bill. This means that the money will be held by the trustees on terms that leave them to decide if, when and how the beneficiary receives his money.
Really it is impossible to say which type of trust is the best option. So much depends on the individual circumstances and the wishes and expectations of the testator.
In some situations, the possible availability of state benefits will need to be considered. The tax implications of each route must also be taken into account. A full discussion with a trusts professional is essential.
Much the same considerations will apply in situations where you have responsibility for elderly or infirm parents and wish to make certain of their security if you should predecease them.