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The Importance of Protecting Your Children Through Your Will

When it comes to safeguarding your children's future, your Will is one of the most powerful tools at your disposal. As a parent, it is crucial to ensure that your children are cared for and their inheritance is managed responsibly should the unexpected occur. In this article, we will explore key considerations to keep in mind when drafting a Will that prioritises the well-being and security of your children.

Appointing Guardians and Trustees: Ensuring Your Children’s Care and Financial Well-being

Selecting the right individuals to care for your children and manage their inheritance is one of the most significant decisions you will make in your Will. This process involves appointing both Guardians and Trustees to fulfil these essential roles effectively.

Guardians

Role: Guardians are individuals designated in your Will to take care of your minor children should both parents pass away. Their responsibilities encompass your child's day-to-day care, education, health, and general welfare. Choosing a guardian is a deeply personal decision that should align with your values and expectations for your children's upbringing.

Considerations for Choosing a Guardian:

• Reflect on the person’s relationship with your children, their values, lifestyle, and willingness to take on the role.

• Discuss the responsibilities with potential guardians to ensure they are prepared and agreeable.

• Consider appointing a backup guardian in case your first choice is unable to assume the role.

It is important to note that guardians can only be appointed through a legally valid Will. If you pass away without one, the consequences for your children's future care can be severe.

Consequences of Not Appointing a Guardian:

• Court Involvement: Without a named guardian, the court will determine who should care for your children. This process can be lengthy, costly, and emotionally challenging for your loved ones. The court's decision, although based on the best interests of the child, may not align with your wishes or those of your family.

• Potential for Family Disputes: If no clear guardian is named, disputes may arise among family members or others close to your children, possibly leading to strained relationships or even legal battles.

• Uncertainty for Your Children: During the period when a court determines guardianship, your children may experience uncertainty and instability, adding stress to an already difficult situation.

• Possible Unfavourable Placement: The court may appoint a guardian whose values, lifestyle, or parenting style differ significantly from what you would have wanted for your children.

• Loss of Your Say in Their Future: By not naming a guardian, you forfeit the opportunity to ensure your children are raised by someone who shares your values and beliefs.

• Financial Implications: A lack of a designated guardian can complicate the management of your children’s inheritance. Trustees and guardians often need to work together to meet the financial needs of your children. Without a named guardian, this coordination can become more complex.

Understanding Trusts: Bereaved Minors Trusts and 18-25 Trusts

Two specific types of trusts in the UK, Bereaved Minors Trusts and 18-25 Trusts, are designed to manage the inheritance of children in the event of a parent’s death. Each has distinct rules and tax implications, making them suitable for different circumstances when planning for your child’s financial future.

Bereaved Minors Trusts

Definition: A Bereaved Minors Trust (BMT) is intended for children who have lost a parent or both parents. This trust must meet specific conditions to qualify for certain tax advantages.

Key Features:

• Eligible Beneficiaries: The trust is set up for a minor child (under 18) who has lost at least one parent. The child must be entitled to the trust assets outright upon reaching the age of 18.

• Use of Trust Assets: The assets can be used for the child's maintenance, education, and general benefit before they turn 18.

• Ownership at Age 18: Once the child turns 18, they receive both the income and capital of the trust.

Tax Treatment:

• Inheritance Tax (IHT): BMTs are generally exempt from IHT, provided the trust is created under a parent's Will and meets criteria set out in Section 71A of the Inheritance Tax Act 1984.

• Income Tax: Trust income is taxed as if it belongs to the child, benefiting from their personal allowances.

• Capital Gains Tax (CGT): Trustees can use the child’s annual CGT exemption to offset any gains.

18-25 Trusts

Definition: An 18-25 Trust allows for more flexibility in the timing of a child's access to their inheritance, extending beyond the age of 18 but no later than age 25.

Key Features:

• Eligible Beneficiaries: The trust benefits a child or young adult who has lost at least one parent, with access to assets by age 25 at the latest.

• Flexible Distribution: Assets can be distributed at a specified age between 18 and 25.

• Use of Trust Assets: Trustees can use the trust’s assets for the child’s maintenance, education, and general benefit until the designated age.

Tax Treatment:

• Inheritance Tax (IHT): The trust is exempt from the 10-yearly periodic charges if assets are distributed before 25. An IHT charge of 4.2% applies if the child becomes entitled to the trust assets after age 18 but before 25.

• Income Tax: Trust income is taxed at trust rates, but trustees can use the beneficiary's personal allowances.

• Capital Gains Tax (CGT): Trustees can use the trust’s annual CGT exemption to reduce any CGT liability.

When to Use an 18-25 Trust:

• To delay a child’s access to their inheritance beyond 18 to ensure maturity and financial responsibility.

• To provide for a child’s maintenance and education with greater flexibility.

• When minimising IHT charges is less critical than retaining flexibility.

Key Differences Between Bereaved Minors Trusts and 18-25 Trusts

Feature	Bereaved Minor Trusts	18-25 Trusts
Age of Beneficiary	Under 18	Between 18-25
Distribution of Assets	Outright at 18	Can be delayed to 25
IHT Charges	Exempt	Possible IHT charge
Tax Advantages	Child's personal allowances	Flexible, but with potential IHT implications
Control Over Assets	Limited	Greater control

Trustees: Managing Your Child’s Inheritance

Role: Trustees manage the financial assets left to your children until they reach a specified age. They have a legal duty to act in the best interests of your children, involving careful decision-making and financial management.

Considerations for Choosing Trustees:

• Choose individuals who are financially savvy, trustworthy, and understand their legal responsibilities.

• Consider professional trustees for impartiality and expertise, particularly for substantial or complex estates.

• Appoint more than one trustee for balanced decision-making.

Practical Considerations for Drafting Your Will: Making Informed Choices

• Regularly Review Your Will: Update it as circumstances change, such as births, deaths, marriages, or financial changes.

• Communicate Your Wishes: Discuss your plans with chosen guardians, trustees, and your children if appropriate.

• Consider a Letter of Wishes: This can provide guidance to your trustees and guardians, though it is not legally binding.

Protecting Your Children's Future: Key Takeaways

By carefully considering these elements, you can ensure your children's care and financial security in the event of your passing. Appointing suitable guardians and trustees, choosing the right type of trust, and planning for tax implications will help protect their inheritance and provide stability.

Need Assistance Drafting Your Will?

Protecting your children’s future through your Will is a significant responsibility, and we are here to help. Contact our Private client team on 0800 862 0442 or email enquiries@pardoes.co.uk for tailored advice and support to ensure your wishes are carried out effectively.