Protecting your children’s inheritance – what to consider

You have worked hard to provide a great life for yourself and your family. Should you no longer be around, you want to leave your family in the best possible financial position, to continue enjoying the best life they can.

But the bigger risk to your legacy is created if you need to go into care. Care is ‘means tested’ – meaning all of your assets, including your house, are taken into consideration. If you have more than the maximum allowance then you will be expected to pay for your own care. Since the maximum is currently £23,500 that is going to apply to most people.

There is some protection here – if your partner or a close relative still lives in your house, your property won’t be counted as capital.

So, with that in mind, how can you protect your children’s inheritance?

Whilst you could transfer your assets to your family now, there are many risks associated with this course of action. If your family fall out, break up or go bankrupt the assets could be divided or sold.

But, crucially, you could lose control of your own property and assets while you are still fit and healthy. As a result, we would not recommend this.

The better option is to set up a Family Protection Trust

This is also sometimes referred to as a Lifetime Discretionary Trust.

You are able to add whatever assets you want to the Trust – property, investments, valuables etc. You will still have day to day control over all of this, and could still gift anything to your family, if you wish. Equally, you can withdraw funds, sell assets or add assets to the Trust at any point.

However, the whole reason for doing this is because the Trust is deemed as a separate “entity” to you, and therefore anything in the Trust would not be included in calculations for care costs.

When you pass away the Trust is handed down to your loved ones as specified in your Will. The Trust can continue, which can also help to reduce the cost of Inheritance Tax.

You can put stipulations on accessing the Trust into your Will. For example, you may wish for your children, even if they are over the age of 18, to reach a specific age before they can access funds. This is a very common approach, allowing your children to mature before they spend away their inheritance.

Equally, if you consider there are other risks, such as relationships that are volatile or family members with financial problems, you can protect assets so the Trustees can determine when to release monies.

In terms of appointing Trustees, this is similar to choosing the Executors for your Will. You will want people who you know are trustworthy and will have your family’s best interests at heart. You can choose family members, including the Trust beneficiaries, but you need to consider if there will be any conflict with that selection. Alternatively, you could choose somebody entirely independent. You don’t need to choose right now, but it is worth you considering this ahead of forming the Trust.

Trusts can be extremely complex

There are a number of things to consider before you go ahead. Frankly, we have seen far too many Trusts that have been poorly set up, where it is clear that the originator’s intent was not appropriately executed.

It is definitely worth investing in professional advice to ensure the Trust is set up to deliver exactly what you want – protecting your children’s inheritance and leaving them well provided for.

If you would like to discuss protecting your assets or a Trust in more detail, please contact us on 01344 875 310.