Tipp FM Legal Slot – 30th October 2012
John M. Lynch on Will Trusts – Minors/Guardians
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Download Our Will Trusts – Minors-Guardians Notes
We have been discussing wills over the past couple of weeks, remind us again what happens if a parent dies and they have not made a will?
- The surviving spouse will inherit two thirds of the estate
- The surviving children are entitled to one third of the estate, between them.
- When this happens, and it often does, the spouse and children become entitled to shares in the family home.
- If both parents are deceased, the children will be entitled to the entire estate which will be divided equally between them.
Why would a parent make a will if they will be entitled to a share on intestacy anyway?
The main reasons for parents, particularly where they have young children, would be to make provision for guardians of their own choice, to make sure that each child is properly provided for depending on their circumstances and finally to ensure that you have the right people in place to manage the assets over a number of years if both parent pass away when the children are quite young.
Is there a particular type of will that parents make in order to make sure that the children’s welfare is taken care of and of course financially taken care of?
The recommended will for parents of young children is a will trust. The usual form of will trust has some basic features which can be developed, or changed again depending on the circumstances of the family.
First and foremost like any will the will trust will appoint executors. In this instance they will also act as Trustees.
How would you distinguish those roles? Or what is the difference between acting as an Executor and Trustee?
- The role or function of the executor is to take all the necessary steps to obtain the Grant of Probate.
- The role of the Trustee takes over once the probate has been granted and the trustee manages or looks after the assets until the beneficiaries reach the age when they become entitled to the assets in their own right, e.g. 21 or 23.
How do people choose Trustees?
I always say to my clients – choose someone that you know, like and trust. Remember if anything happens you will be handing over responsibility and authority to them to look after your assets until your children are of a certain age. I would often say to people make sure that you are happy that that person has the ability to make the right financial decisions for your children – they after all will have control of the purse strings.
Once the Trustee is decided on, what next?
The next major decision that has to be made is the appointment of guardians for your children that are under 18. I can appreciate that this is probably the one of the most difficult decision that any parent will have to make or face but against that the consequences of not doing so make it ever more important for parents to actually take the step.
How do you distinguish between the role of Trustee and guardian?
It is very simple really – the Trustee can be likened to the money manager and the guardian’s primary concern is the welfare of the children.
What advice do you give to parents who are trying to decide upon a guardian?
Every situation is different and so the advice that I will give will depend on the circumstances but generally speaking I would make the following points:
- Make sure that your children know the potential guardians, that they have some form of relationship with them. You don’t want your guardians to be strangers to your children. This might be very difficult where children are very young and have not formed strong relationships – but as the years go by this will change and it will always be an option to change the will.
- If at all possible try to choose a guardian that lives close by so that the children can stay in their school and maintain their friendships.
- Sit down and discuss the situation with the potential guardian and make sure that they are happy to act as guardian.
- Remember that when you appoint someone as a guardian that that does not mean that they are automatically entitled to custody of the child or children. By custody I mean the day to day care and control. If as a parent you want someone else to look after the children on a daily basis then it is important that you are explicit about that.
Once parents have decided upon Trustees and guardians, where do you go from there?
After that you get in to the actual creation of the trust and specifying the powers that you are giving to the Trustees.
The creation of the trust, at its simplest, happens when the parent direct in the will that their assets are given to the Trustees and are to be held by them for the benefit of the children, and once the children reach a certain age then the trustees must handover the trust property.
What age do parents normally specify for their children to be for the handover of the property to take place?
In the majority of cases parents will say 21 or 23, again it largely depends on the circumstances of each case.
Does that mean that the money or property is locked away until the children reach a particular age?
No, the guardians, for one, would be in a very difficult situation if the assets were untouchable until the children reached 21 or 23. The trustees can pay out a portion of the capital or the estate or some of the income (deriving from the assets) if it is required for the children. I always use the example of school or college. If the guardians need money to get the children back to school items or money for college then the trustees have the power to make a payment out to fund those expenses.
One thing that I usually say to people at this point is when you are considering trustees and guardians, although the Trustees can also act as guardians it might be worthwhile assigning the roles to different people so that you don’t have a guardian with a potential conflict of interest if they have to make financial decisions.
What powers do the Trustees have over the assets and money?
There is little doubt but that the Trustee takes on a very onerous task and they have a duty to act in good faith and must make sure that they are not reckless or dishonest in their dealings with the assets.
- The trustees have the power to make investments and to change those investments
- Trustees have the power to sell assets
- Trustees also, we said earlier, have the power to make payments out of the capital of the estate. Those might be to cover educational expenses or medical expenses.
- Carry out appropriation of assets to beneficiaries, which is essentially distribution of assets according to their circumstances. An example of how this might work would be where you have an estate made up of cash and a house. Take in this situation where there are two children, the beneficiaries decide to give the house to one child and the cash to the other who is not living locally and has no interest in the house. I am assuming for the purposes of this example that the house and cash are of equal value.
- There are circumstances where you might give wide powers e.g. to carry on a business and appoint managers for the business.
What happens in circumstances where you have a child that has a disability and will never be able to manage his/ her own affairs?
In that situation a parent would be advised set up what we call a discretionary trust will. The will directs the Trustees to use the money or assets for the maintenance of the child or children but the Trustees have absolute discretion how and when the money is used, if at all. The beneficiary of the Trust will never become entitled to the money or assets in this case.
