Testamentary Guardians - Uses of Trust Fund for Raising Children?

Discussion in 'Wills, inheritances and gifts' started by Concrete, Mar 8, 2018.

  1. Concrete

    Concrete Registered User

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    Hi,
    I've looked on AAM and elsewhere but amn't clear on this.

    Would someone mind please explaining to me to what extent childrens' guardians (who were also the trustees of either a fixed interest trust or discretionary trust for the children) would be allowed to use the trust funds to pay for expenses related to the costs of keeping and raising the children?

    The reason I ask is that my wife and I are starting to think about guardians for our children, in the unlikely event of us both dying at the same time.

    Let's say my brother and his wife were to agree to be guardians and they were then struggling financially/spacewise in their house/car/etc. with the extra burden of two more children in their family to look after (in the case of the worst happening). Could they say use fund money to build a house extension or towards upgrading their car to a bigger one, as it's ultimately for the benefit of the children?

    Or, alternatively, is it usual to bequeath a sizeable amount of money (from life insurance or whatever) directly to a guardian to help them with such potential costs? I haven't found an example of someone doing this though.

    I certainly wouldn't want my brother (or whoever the guardian was) struggling to accommodate a child who later became quite wealthy in their own right when they turned 25 (or whatever's specified in the will).

    Thanks!
     
  2. Thirsty

    Thirsty Frequent Poster

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    IANAL

    and this doesn't really answer your question, but I'm always struck with the thought that parents will willingly trust their siblings to raise their orphaned children but worry about what might happen to the money.
     
  3. Concrete

    Concrete Registered User

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    Thanks for your reply Thirsty.

    I probably wasn't clear - my key question is: Does the guardian have free reign with regards how they use a fund for the childrens' benefit (e.g. by buying a bigger car because they now need to, with their suddenly increased responsibilities) or would they get in trouble for using a fund that way?

    Just from your personal experience then, if you have children and have named guardians in a will, how have you ensured the guardians wouldn't struggle financially if the time came (or how might you do that if the scenario doesn't apply to you)?
     
  4. Brendan Burgess

    Brendan Burgess Founder

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    Concrete

    Don't make life complicated and don't make huge profits for the legal profession.

    Make a will leaving a substantial sum to your brother and his wife in the event of you dying in the next few years. No trusts. No messing about. Then you don't have to worry about it.

    Thirsty makes a good point. If you trust them to mind the children, you can trust them to spend their inheritance well.

    When your children are independent, revise the will.

    Unless you have known health issues, it's unlikely that you and your wife will suddenly die at the same time.

    If you both have some terminal illnesses, then you need to sit down with your brother and his wife and discuss the options with them. Then take legal and tax advice.

    Brendan
     
    Thirsty likes this.
  5. Thirsty

    Thirsty Frequent Poster

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    Concrete - At the time, I pretty much did exactly what Brendan suggested, left everything to my then sibling.

    Thankfully my children are now adults & I'm still on the planet so will long since updated.
     
  6. Concrete

    Concrete Registered User

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    Thirsty, Brendan - thanks for that.

    Wife and I aren't planning on shuffling off this mortal coil anytime soon but, with young children, want to cover the possibility. (we intend living forever - so far, so good...)

    Brendan - As far as I understand, if we leave anything directly to our children (even if we leave the bulk to my brother), that would automatically create a trust for children until they're 18 - do you feel it's less complicated to avoid leaving young children anything directly (if I'm correct in my understanding of trust being created)?
     
  7. Thirsty

    Thirsty Frequent Poster

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    While you have this matter under consideration, look at taking out life policy to cover inheritance tax. This is separate to mortgage policy & regular life policy & is used to cover IHT payment.
     
  8. Brendan Burgess

    Brendan Burgess Founder

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    Hi Concrete

    No, you should leave the bulk of your estate to your children.

    But you should leave enough to their guardians directly in their own name so that there is no misunderstanding or fighting.

    Brendan
     
  9. Concrete

    Concrete Registered User

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    Brendan,
    But doesn't that create a trust fund until the children are 18?
    Sorry - so many questions!
    Thanks.
     
  10. huskerdu

    huskerdu Frequent Poster

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    Yes, There are loads of questions. You need legal advice.

    It cost us 200 quid to get two wills written and it was money well spent to have peace of mind that we had thought through what should happen and made the best choices.

    The solictor explained properly
    - what happens if you set up a trust
    - the pros and cons of different types of trusts
    - how the trustees can access money for the children.
    - the diffference between the childrens guardians and the trustees of the trust , which are not the same thing
     
  11. huskerdu

    huskerdu Frequent Poster

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    Its not as simple as that. Either scenarios involved some messing

    If you leave a substantial amount to your brother, the CAT bill will be higher than leaving it to your children.

    Depending on your income, the income of your sibling and any differences in attitude to spending / saving, leaving a substantial percentage of the estate might be the wrong thing to do ( It would be in my case).

    Thankfully, for the vast majority of us, the will you make when your kids are young never gets used,
     
  12. Concrete

    Concrete Registered User

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    Huskerdu,
    Thanks for that.
    Yes - we'll be talking to the solicitor about all that when making the will.

    I suppose rather than seeking individual legal advice, I'm on here to get general ideas on different possibilities from yourself and others (which has been very useful so far). That way, I'll have expanded my understanding and have had time to think about different possibilities before talking to solicitor.
    Could I ask how you approached the issue - it sounds like you chose to leave most in a trust fund, if I understand correctly?
    If so, were you satisfied that that allowed enough leeway for the guardian to cope financially if the time ever arose?
     
  13. Concrete

    Concrete Registered User

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    Huskerdu/anyone else - any further thoughts before we go and leave everything in a fund, with our goldfish as both guardian and trustee?
     
  14. PMU

    PMU Frequent Poster

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    I'm a trustee of a discretionary trust established by a badly worded will. Operating it initially was a nightmare; the trustees had to get legal advice, tax advice, etc. I'm certain if the will had been better worded, i.e. stated exactly what the disponer wished in clearly defined terms, and established the trust within the terms of the legislation, both the operation of the trust and its administration would have been easier and cheaper. This is one area where I suggest it would be prudent to obtain legal advice and perhaps also tax advice now. There are numerous issues on which you need to decide and need advice, e.g. are the trust funds to be held in bank accounts, in government bonds or equivalents, or have the trustees the discretion to invest in property or equity funds etc. Can the funds be used for educational purposes only, or for education and health? At what age will the beneficiaries obtain their inheritance? etc. So there is a lot you need to consider and my only suggestion would be to restrict as far as possible the discretion of the trustees in administering the estate and provide discretion is only in specific areas, e.g. education. Giving discretion on “expenses related to the costs of keeping and raising the children” is far too broad.
     
  15. Concrete

    Concrete Registered User

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    Thanks for that PMU - that's useful.