denotes premium content | Jan 9 2009 Feature
posted 1 Jul 2000 in Volume 5 Issue 5
Advising grandparents on their wills
in the modern family
By Susan Midha
With one in five children in
the U.K. being born out of wedlock, the shape of the family is changing.
Many families now include what used to be the unconventional but is now becoming
the norm - stepchildren, half-brothers and sisters, parents living together who are
unmarried, married parents who live apart, sometimes in different countries,
with every conceivable combination of responsibility for, and arrangements for
access to, the children. Even for those families where this has not yet
happened, in planning wills and trusts many clients now wish to take these
possibilities into account.
In addition to the variety of shapes
that it can have, the problem with the modern family is its mutability. Within a
surprisingly short time the relationships in a family may have moved through a
traumatic divorce to a stable relationship with a new partner. There may be
instant additional children. The wronged wife or husband may have acquired
another partner. Attitudes of all family members can be very fluid.
During this time
a flexible discretionary will may be worth considering. The discretionary will
is broadly a will which leaves the residue to the executors to decide who to
benefit, when and by how much. The class of beneficiaries is usually well
defined and generally includes a combination of named beneficiaries and those
which fit into a particular class (eg children and remoter descendants). If it
is appropriate (because the size of the estate) then a life interest can be
inserted in favour of one or more beneficiaries which can then be revoked by the
executors when they wish to make a payment of capital. This avoids any problem
of exit charges which is normally associated with discretionary will trusts in
excess of the nil rate band.
The testator chooses as his executors
individuals who are independent of the potential beneficiaries and on whom he
can rely to carry out his wishes. He then expresses those wishes to the
executors in a letter or in any other way in which he is satisfied that the
executors have understood what he wishes to achieve.
The flexible will has numerous
advantages. In view of the intense emotions which often accompany the breaking
up of a relationship, it is often difficult to persuade a client to make a will.
We will all have had clients who say
'I want to sort out what will happen
on my death but everything is so uncertain I just don't know where to start.'
Alternatively the
client may ring you asking you to change a will which he had carefully thought
out, determined to cut out an errant child or grandchild. In both these
circumstances, offering the client a flexible will may enable one to serve the
client sensitively and professionally:
It is worth considering making the definition of
beneficiaries very wide, e.g. my children and remoter descendents and the parents,
spouses, widows and widowers of such children and remoter descendents. The
advantage of including 'parents' here is that it covers a person who does not come within
the definition of 'spouse' but is the mother or father of a child or grandchild.
Clearly if one knows the name of a quasi daughter-in-law or son-in-law, then it
is worthwhile including them by name but this covers the contingency of future
children from a relationship which is developing, and also prevents the need for
what some grandparents view as too explicit a recognition of a relationship at
the time that they are making the wills.
A further advantage of a discretionary
will is that it prevents assets becoming part of the estate of your child at a
time when it would be inappropriate to do so:
While putting an adult child's share of one's estate into trust does not
mean that it cannot be taken into account by the court in determining an
application by his or her spouse for financial provision, it makes it slightly
less likely that it will be regarded as a resource of the adult child than an
absolute gift would be. This is particularly the case if the trustees really do
have a discretion not to benefit the adult child and indeed may not. It is worth
remembering that in certain circumstances the court can ask to see a letter of
wishes left by the testator (or one provided by a settlor in regard to a
lifetime trust).
Inheritance tax planning for adult children should always be considered
if one is advising parents whose children have assets of their own, since a
discretionary trust may well be suitable in other circumstances, regardless of
whether there is a non-traditional family set-up. If the adult child is not
married to his or her partner, no spouse exemption will be available for gifts
to him or her. On divorce, once a decree absolute has been granted the
inheritance tax position may be exacerbated by the loss of a spouse exemption
and it is important to ensure that assets which might take the adult child above
the nil rate band for inheritance tax purposes do not come into his or her
estate unnecessarily.
The flexible discretionary will can give the adult child access to and
effective control of his inheritance without it forming part of his estate for
inheritance tax purposes. And if the testator happens to be non-UK domiciled the
tax advantages of a flexible trust can be even greater.
Parents may have written insurance
policies (possibly joint life second death policies for payment of inheritance
tax) in trust for one or more of their adult children. These can also be written
in a flexible way rather than made payable to the adult child absolutely. In
some circumstances death in service benefit or pension benefits may also be best
nominated into a trust, rather than nominated to the adult child direct.
Maintaining contact with
their grandchildren is an increasing worry for some grandparents. In many cases,
this is simply a function of distance, but occasionally it comes about as a
result of the actual breakdown of a relationship with the parent looking after
the child. It is possible, although fairly rare, for grandparents to apply for a
contact order under section 8 of the Children Act 1988 but, as with almost all
legal proceedings relating to children, the court will regard the child's
interests as of paramount importance.
The father of an illegitimate child
has no parental responsibility for that child unless it is agreed with the
mother or ordered by the court. This can have important implications on the
question of who would look after the child in the event of the mother's death,
or of her deciding to take the child out of the country. While many private
client practitioners would take the view that this was outside the scope of the
advice which they can give, alerting clients to these sorts of problems can be
an invaluable service which the adviser is uniquely positioned to give.
Gleaning the assumptions
underlying the client's instructions is never easy. Sometimes they become
apparent from talking to the clients generally, but often they are hidden and
can very significantly affect the client's approach. It can help the parents of
an adult child who cohabits with his or her partner to formulate their wishes to
be reminded that the law does not treat cohabitees in the same way as it treats
married couples.
The recent Law Society Council discussion paper, which suggested that
cohabitees should be treated the same as husbands and wives, was greeted by the
press as if it were just about to be made law. Nothing could be further from the
truth. Nonetheless, many clients will have heard snippets of press coverage over
the years which will make them think that cohabitees and married couples are
indeed treated in the same way.
They may also need to be
reminded that the normal definition of 'children' does not include step-children but
does include illegitimate and adopted children. Occasionally, clients specifically
do not want illegitimate children to be included, but by and large
grandparents increasingly seem to want to treat all children equally - even
step-grandchildren. It is wise, therefore, to take specific instructions on
which children and grandchildren are to benefit and not to rely on the client's
raising the query: often they are so used to thinking of all children in the
same light that they forget that the law may make distinctions.
On the other hand
step-children and step-grandchildren are included under the marriage exemption
under s.22 IHTA.
Ironically, an increasing number of grandparents are themselves starting
to have relationships (within or without marriage) after divorce or the death of
their spouse. This itself can give rise to a whole range of other
considerations, some practical, some fiscal [and we will be looking at those in
a future issue].
Susan Midha is a specialist in inheritance tax and estate planning.
She can be contacted on:(01689) 851816 or sjm@sjmidha.freeserve.co.uk
