How can I ensure my estate will be used wisely by my beneficiaries?
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I am in the fortunate position to have built up a portfolio of savings and investments that is currently worth about £1.5 million. I’d like to leave this in my will to my grandchildren, but I’m concerned that they may not use it wisely if I die while they are still young adults. Can I tie the money up somehow until they are older or want to buy a house?
Matthew Beck of Smith & Pinching responds:
I think that it would be a good idea for you to discuss your situation with a Chartered Financial Planner to work out the most effective solution.
Firstly, we should look at what you might need to support yourself and be financially secure now and in the future. Having established your needs, we can then look at what you might feel comfortable giving away during your lifetime, either as direct gifts to beneficiaries or gifting assets into a trust for them. This could also help mitigate your potential future Inheritance Tax (IHT) liability.
Gifting may not be suitable for you if you are worried about your grandchildren making poor use of the money. Trusts could solve this, but you must consider that using a trust often means that you no longer have access to or use of the money. In addition, you could set up a trust in your will to help manage the distribution of your estate according to your wishes.
A trust is a legal entity that holds assets or cash and places it under the responsibility of trustees, appointed by you. It gives certainty and protection for your money: the trust can help protect against financially immature beneficiaries frittering away their inheritance, as well as protection in other circumstances where an outright gift or bequest might be vulnerable, such as if the beneficiary were to become bankrupt or get divorced.
However, there are many types of trust, each with different complexities, access rights, uses and limitations. They all involve costs to establish and maintain, plus there can be tax implications.
As it stands, it looks like you may incur an IHT liability when you die and I suggest you factor this into your planning at this stage. This could be mitigated through gifts and trusts, but there are rules about what you can give away at any time without affecting your IHT position, so do get advice about this.
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It’s always a good idea to involve your family members in this type of decision, so I strongly recommend that you discuss your plans with your children and grandchildren first.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk