At any stage of parental life, things can often be fairly chaotic and slightly overwhelming. But as much as parents are focused on that moment in time, it’s also crucial they consider the future for their child.
Many people assume that as parents, if something happens to one, the other will automatically inherit everything, but with no Will in place that’s not the case. In fact, if parents are unmarried then the partner is automatically entitled to nothing and this often comes as a shock. Writing a Will is something many parents do not want to think about, the thought alone can be overwhelming.
It’s also a common misconception that should something happen to both parents the children will automatically go to family members or friends that they know to be taken care of. Unfortunately this is not automatically the case. More often than not, the court gets involved to make the legal decision for guardianship of the children who could find themselves in the temporary care of social services until this is resolved.
How many clients do you have that are parents of your children? Do they realise that by writing their Will they can make sure that if they or their spouse/partner were to die, their family will be provided for and their estate will be divided the way they wish for it to be. But it’s not all about money. Making a Will allows them to appoint guardians for their children. If these plans aren’t outlined in a Will, and both parents are deceased, the local authority or the courts may be left to decide who should look after the children.
If your clients, as parents, don't have a Will:
- their spouse, cohabitee, partner or civil partner won't automatically inherit everything
- if they are not married to their partner, they won't inherit anything
- their children's guardianship may be decided by a local authority or court
- any step-children or foster children won't automatically inherit anything.
By making a Will your clients are doing the following:
- Identifying how they want their assets distributed after they die (e.g., their car, house, jewellery, even their clothing). Without a Will, their estate may be handled in probate court. The court will determine how to distribute the property and assets, and the result may be different than what the client would have chosen. If their child is a minor, the family courts may appoint someone to hold and manage funds until the child becomes an adult at age 18, and the person may not be a friend or family member that they know and trust.
- Selecting an “executor,” or the person (often a spouse, adult child or other close family member) who will administer the Will upon their death. This person is responsible for seeing that all requests are fulfilled, taxes and debts are paid and that any property is distributed to the beneficiaries, so your client must pick someone they trust implicitly and who can handle the financial duties of overseeing an estate.
- Establishing if your client wishes to create a Trust. In some cases, parents may want to establish a trust. This allows them to control how and when assets are given to their children. For example, they might not want their children to have immediate and full access to their inheritance at the age of 18. By establishing a trust, the funds will be held in that trust and controlled by another selected person for assets to be allocated in accordance with the client's wishes throughout their children’s lifetimes.
A parent with parental responsibility can appoint a guardian for his or her children in their Will, which they date, sign, and which provides that the appointment only takes effect on their death.
Parental responsibility is defined as ‘all rights, duties, powers, responsibilities and authority, which by law a parent of a child has in relation to the child and his [or her] property’. This is wide ranging and obviously carries significant authority and responsibility.
It’s vital to remember that not all parents will have parental responsibility and therefore be able to appoint guardians for their minor children. The basic position is that if the mother and father are married at the time a child is born, then both will have parental responsibility. However, if the father and mother were unmarried, only the mother will have automatic parental responsibility. The father can acquire parental responsibility if (i) he marries the mother (ii) he becomes registered as the child’s father; (iii) he and the mother make a ‘parental responsibility agreement’; or (iv) the court, on his application, orders that he shall have parental responsibility for the child.
This means that if the parents are not married and something happens to the mother, if there is no clarification for guardianship then the father will have to go through the courts in order to get guardianship – it is not necessarily automatic. This can cause upset for all involved. If you have clients in this situation, it may be something to discuss with them.
Appointing a Guardian
The most important thing you can possibly do as a parent is to appoint a guardian.
It's important your client carefully considers who they would appoint as a guardian in the event that they, or they and their partner, were to die. If guardian is not chosen, the local authorities will be charged with deciding – and while they often prefer immediate family, this is not automatic. Keep in mind that the appointment of a guardian automatically ends when the children reach the age of 18. Most people nominate more than one guardian, or at least a substitute guardian in case the first is unwilling to unable to take the role. Ensure your clients discuss this with the people they choose before naming them.
Choosing a godparent is not the same as choosing a guardian, as godparents have no legal rights. If clients wish the godparents to look after their children if they die, they must name them as guardians in their Will.
Consider a plan for their children’s finances
As their adviser or estate planner, you can further support your clients by helping them consider a plan for the financial support of bringing up the children in the event of their death. How will or can their estate cover these costs? In their Will, encourage them to think about balancing the competing needs of all family members. There needs to be the confidence that their estate will provide for their partner, children, step-children and any other people that they wish to benefit.
Do they have step-children or other dependents?
If a client has step-children, they will not automatically inherit from the estate unless they are specifically included in the Will. This may also be the case for other children they care for – such as foster children – as well as any dependent adults that rely upon them.
Deciding on the age of inheritance
Discuss with your clients at what age they want their children to receive full control of their inheritance. Unless the Will says otherwise, they will automatically receive access to their assets at 18 in most cases, although the default in Scotland is for the child to inherit at 17. Before this age, children can still benefit from their inheritance, but will not be able to manage it personally. The assets will be held on trust, and managed by a trustee to benefit the child. So, for example, the child may receive an allowance from a cash fund, but will not be able to withdraw money without the trustee's consent. A client may wish to opt for an age older than 18 before their children can become financially responsible, such as 21, so they can outline conditions for access.
At BTWC we provide full support for a range of trusts to suit all differing types of needs and scenarios. We'll take you and your clients through the best options and help ensure the right trust is implemented.
Appoint trustees for your child’s inheritance
If a client dies before the age their children can inherit, their assets will need to be held in trust. To manage that trust, there will need to be a nominated person, known as the trustee. Ensure your clients think carefully about who the best person would be to safeguard their children's assets and help plan for their future. The trustee is essentially in control of the children's finances. A client may wish to appoint their partner as one of the trustees, with either one or two further trustees, or substitute trustees in case both parents pass away. Generally, choosing one trustee is a bad idea and a minimum of two trustees are always required by law. There's a risk that one person may not be around, in which case there are rules that dictate who would be appointed. The rules give precedence to family relations, and there's a chance that the person who is chosen may not be who your client would prefer.
If there are any concerns or queries regarding inheritance tax and considerations around this, then make sure you speak with the BTWC team, we have dealt with numerous IHT scenarios and partner with tax experts for those more complex cases.
It’s a good idea to encourage clients to review their Will regularly, particularly if something significant happens in their life, such as another child, a divorce or a death.
All the above help provide guidance for conversations with your clients. Many may not have realised the true circumstances that can occur upon their death, and whilst it's a delicate subject, it's an extremely important one that few parents will say no to.