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. It’s an important part of your financial plan and, if you want to protect or provide for younger family members, there might be some additional steps to 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 child, grandchild, or other relative, here are some 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 if you pass away is important.
Usually, if one parent passes away before the 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 the 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 the child.
Despite this, 2023 data from The Association of Lifetime Lawyers suggests it’s something many parents have overlooked. Indeed, 70% of UK parents had not named a legal guardian to care for their children in the event of their death.
So, using your will to name a guardian for your child is an important step.
You can choose to appoint a guardian, subject to conditions being met. For example, you might appoint the child’s grandparents as guardians, provided they are below a certain age and, if not, name a substitute.
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’re deemed to 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 the assets to be managed on the beneficiary’s behalf.
A trust is an arrangement that names a trustee to manage or distribute the assets in the trust on behalf of the beneficiary.
One of the benefits of a trust is that you can set out under what circumstances the assets may be used, and they could provide both short- and long-term financial security for a child.
For example, you might state that while the beneficiary is under 18, the trustee may use the assets to pay for education 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 want to leave assets to your grandchild, the trustee could be their parent and you allow them to use the assets how they wish.
The assets held in a trust don’t have to be given to the child when they turn 18; you can set out when, if ever, this happens. Instead, you might state 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 25.
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 young 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.