Decision about a will: Is there a way we can include our child as a beneficiary and safeguard the inheritance from gambling?
My husband and l are currently updating our wills.
It is our second marriage and we have five children between us.
We’ve been married over 20 years and so are very happy to have mirror wills whereby on the death of one of us, the spouse gets the estate and thereafter the estate is split equally five ways to the children. We’ve accrued a decent amount of money.
One of our children has some episodes of depression and anxiety and sometimes irrational behaviour.
They have threatened suicide in the past.
They feel undervalued and have very low self confidence. They also have a gambling issue and an IVA (Individual Voluntary Arrangement).
They are a hard worker but have always only had minimum wage temporary jobs. The inheritance could really help them gain some positivity and not feel they are never good enough.
Is there a way we can include them as a beneficiary and safeguard the inheritance from gambling? I know if we were to not include them in the will, this would definitely trigger a very bad mental health episode.
Because of their previous behaviour we have very limited connection and they feel outside of the family unit.
We don’t want to exclude them but is there a way we can protect the inheritance from being gambled away and safeguard them from rejection? I would welcome any help.
Tanya Jefferies, of This is Money, replies: It is understandable to want to treat all your children equally but also take some precautions if one is unreliable with money.
We asked a lawyer to explain how you can split your estate fairly between them, but put decisions on when and how much money is paid out to each sibling in the hands of people you have chosen and trust to understand your wishes and concerns.
When it comes to mirror wills, there are risks to these which you might feel comfortable with as a couple, but which she explains for the benefit of readers who could be unaware of the potential hazards.
Diva Shah, senior associate in the private client team at law firm Kingsley Napley, replies: It is not uncommon for parents to be concerned about protecting the assets they leave behind.
Misadventure and divorce are often the main reasons. While you cannot take your money with you, you can control (to some extent) who has access to funds and when from beyond your grave.
The most commonly used structure within a will to achieve some form of control post death is called a discretionary trust.
Diva Shah: Trustees can make decisions on an individual basis for each child taking into account their need and circumstances
The discretionary trust acts as a vehicle by which your chosen trustees (often the executors named in your will) control the assets for your chosen beneficiaries. The beneficiaries would be your children, grandchildren and any other individuals or charities.
The trustees have the ability to pay capital or income to the beneficiaries as they deem fit. There are no defined shares as to who inherits from the trust since this is based solely on the trustee’s discretion.
However, the trust can notionally be held in equal shares for the children, so in this case, one fifth shares for each child.
The trustees are guided by your Letter of Wishes which sets out your wishes about the trust and protection, including circumstances in which you would like funds made available or not.
This could include wishes about making funds available for property purchases, education or medical expenses but holding back funds if there are concerns about divorce, financial immaturity or mental health.
Essentially, the trustees can make decisions on an individual basis for each child taking into account their need and circumstances.
You can also include that you would like the children to be involved in decision making to allow them to engage with the trustees.
In your particular situation, this would allow the trustees to consider how the funds could be used to benefit your child in the best way (taking into account your wishes), for example, contributing towards a property (which could be held in the trust) or providing them with a small regular income but holding back the majority of the capital until they are ready and capable to manage the funds.
The contents of the Letter of Wishes can be kept confidential among the trustees, so your children need not be told what is in it or ever see a copy.
The Letter of Wishes is not legally binding and the trustees can chose not to follow it, especially if a change of circumstances makes your wishes less relevant.
Therefore, the choice of trustee is vital; it has to be trusted individuals with an understanding of your child’s issues and your intentions or it could be professionals.
You could choose to have your children, but careful thought needs to be given as to whether this would be appropriate or cause conflict between them (only four trustees can act).
There are tax consequences with discretionary trusts, including annual expenses, exit charges and 10-year anniversary charges of up to 6 per cent of the capital value above £325,000.
However, this could be viewed as the price to pay to protect the assets. If the assets are appointed out of the trust within two years of death, this is generally tax neutral.
A final point on the question of mirror wills. It is important to consider the risk with this arrangement whereby a surviving partner can, of course, change their will after a spouse’s death and disregard the agreement originally made.
Although there may be a moral obligation on the survivor to honour their late partner’s wishes, there is no legal obligation to do so.
One common scenario arises where the survivor remarries and makes a new will and diverts their estate away from their children to the new spouse.
An alternative to leaving everything to the spouse outright is the use of a life interest trust which provides control over the estate after death and holds the estate for the chosen beneficiaries whilst ensuring the life tenant (the spouse) can benefit during their lifetime.
Professional legal advice on discretionary trusts, mirror wills and life interest trusts is imperative. The pros and cons of each would be explained in more detail and then you can then make an informed decision.
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