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How to protect your child from losing their inheritance

How to protect your child from losing their inheritance

How to Protect Your Child From Losing Their Inheritance

How to protect your child from losing their inheritance.

Case Study:  Pete and Sandra

Pete and Sandra had three lovely grown up children, Kevin, Julie and Steve. They had a home worth £200,000, with the mortgage paid off, and they had a further £100,000 in investments. When Pete and Sandra passed away, Kevin, Julie and Steve each received an inheritance of £100,000.

But, although the inheritances should have provided the three children with a secure financial cushion, this isn’t what happened.

How their Inheritances were lost

Kevin’s wife Alice left him and filed for divorce. She also applied to the divorce courts for a financial settlement. The court awarded her half of Kevin’s assets, including half of his inheritance. This meant that one sixth of Pete and Sandra’s capital ended up in the hands of someone else’s’ child, Alice.

Julie had her own business but was hit hard by the recession. Her business folded, owing the bank £100,000 and Julie was made personally bankrupt. All of Julie’s inheritance, one third of Peter and Sandra’s assets, ended up in the hands of the bank.

Steve suffered from an addiction to gambling, and lost every penny of his inheritance at the bookmaker’s within a year. Another third of Pete and Sandra’s assets ended up in the hands Ladbroke’s.

All told, £250,000 of Peter and Sandra’s hard earned assets were diverted away from their children.

Common scenarios

You’ll be pleased to know that this scary story is fictional. However, none of the scenarios we have looked at are at all uncommon. It is so easy for an inheritance to be eroded by a predatory ex-spouse, the consequences of business failure, or the consequences of addiction or substance abuse.

The good news is that there is a way to protect your children’s inheritance form risks of this nature.

The Solution – Family Trust Wills

Let’s rewind to the beginning. While they were still with us, Peter and Sandra made Family Trust Wills.

Instead of leaving their assets to their children absolutely, they left their assets to Trustees.

The Trustees were given a wide discretion to take care of and distribute Peter and Sandra’s assets as they saw fit, on condition that they always acted in the best interest of Peter and Sandra’s Beneficiaries. 

Peter and Sandra’s beneficiaries were …. You guessed it, Kevin, Julie and Steve.

Along with their Wills, Peter and Sandra left clear Expressions of Wishes, giving the trustees instructions as to how the money should be taken care of and distributed.

How the Family Trust Will Gives Protection

When Peter and Sandra passed away, the trustees took care of the money on behalf of Kevin, Julie and Steve, and gave them access to the money as they saw fit, provided that the money was used for a beneficial purpose.

They distributed the money even-handedly, but never fully handed ownership of the assets over to the children.

Consequently, when Kevin’s wife divorced him and applied for financial provision, the court could not take account of the trust assets in the settlement, because Kevin had never officially inherited anything.

When Julie’s business folded and she went bankrupt, the Insolvency Service could not get at the trust assets on behalf of the bank because they did not belong to Julie.

And the trustees were careful never to give Steve more than a small allowance from the trust assets, so that he could not overfeed his gambling addiction. They also invested a portion of the assets in paying for the best rehab treatment available to Steve so that he could overcome his addiction.

If you would like to explore ways of safeguarding your children’s inheritance, feel free to contact us on 0151 601 5399, or to fill in the contact form below, and we’ll be happy to show you how.

"We decided to seek advice about estate planning because we wanted to understand how to efficiently protect our assets and pass them safely to our children and grandchildren. We also wanted to put as much help in place for our family as possible, so as to make things as easy as possible for them when the time comes. We liked Gina’s patient and diligent manner in answering our questions and guiding us to the right solutions. Gina explained everything to us with great clarity, making concepts we were unfamiliar with accessible and clear. We particularly liked the fact that Gina came to see us in our own home without our having to make a special request; this is just the way she works. It was so much easier for us to relax and talk freely in the comfort and privacy of our home. Having put the right estate plan in place we feel that we have ticked a big box. This was something we knew we had to get round to. Now it is done and sorted and we don't have to worry about it anymore. We have also gained a clear understanding of the measures that have been put in place and why they are important. "

Matt & Betty R

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