Essential estate planning steps that could protect young family members
When you’re creating an estate plan there are a lot of areas you might need to include, from considering tax liability to naming your beneficiaries. An estate plan is an important part of your financial plan and if you want to protect or provide for younger family members, there might be some other steps you can take.
In simple terms, estate planning means setting out how you’d like your assets to be managed later in life and when you pass away.
While thinking about death can be uncomfortable, estate planning is a way to ensure decisions align with your wishes.
If you have young family members that you want to include in your estate plan, whether they’re your children, grandchildren, or other relatives, here are a couple of steps that might be essential.
Use your will to name a guardian for a child
If you’re a parent or guardian of a child, considering who would be responsible for their care when you pass away is important.
Usually, if one parent passes away before a child is 18, the surviving parent will take parental responsibility, regardless of any guardianship appointment.
When there is no surviving parent or valid will, the court will typically appoint a guardian. Even if you’ve informally agreed with family or friends who will care for your child if you die, the court will make the decision. As a result, the outcome might not align with your wishes and may not be what you believe is best for your child.
Despite this, data from The Association of Lifetime Lawyers suggests it is something that many parents have overlooked as 70% of UK parents have not named a legal guardian to care for their children in the event of their death.
You can choose to appoint a guardian subject to certain conditions being met. For example, you might appoint your child’s grandparents as guardians, provided they are below a certain age and if they are not, you can name a substitute instead.
A trust might be a useful way to pass on assets to a child
A child can be a beneficiary of your estate. However, by law, they do not have the capacity to receive any money or assets.
Usually, the inheritance you leave to a child will be kept “in trust” until they turn 18. This can be done after your death, but it may be valuable to set up a trust now or use a “letter of wishes” alongside your will to outline how you’d like your assets to be managed on the beneficiary’s behalf.
A trust is an arrangement that names at least one trustee to manage or distribute the assets in the trust on behalf of at least one beneficiary.
One of the benefits of a trust is that you can define the circumstances that the assets can be used in. This allows the assets to be used to provide both short- and long-term financial security for the beneficiary.
For example, you might say that while the beneficiary is under 18, the trustee may use the assets to pay for educational or day-to-day costs.
Alternatively, rather than explaining how you want the assets to be used, you might allow the trustee to make decisions that they believe are right for the beneficiary. So, if you wanted to leave assets to your grandchild the trustee could be their parents, and you might allow them to use the assets how they wish.
If you have set up a trust for a child, the assets don’t have to be given to the child when they turn eighteen, you can set out exact conditions for when the assets will be given out. You can also say that they can take an annual income from the trust but may not sell the assets, or that a trustee will continue to make decisions until they’re a set age.
It’s often sensible to seek professional legal advice when you’re setting up a trust as they can be complex, especially if you have clear wishes about how and when the assets should be used.
A financial review could also be useful and help you decide which assets to place in the trust. It can be difficult or, in some cases, impossible to remove assets once you’ve transferred them.
Contact us to discuss how you could protect your loved ones
Please get in touch if you’d like to speak to one of our team about your estate plan and the steps you might take to protect your younger family members. It could offer you peace of mind that your loved ones will be secure should the worst happen.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, trusts, or will writing.