Ensuring your children are provided for in your Will is the most important of all the aspects of estate planning. This is especially true if your children are minors or from a previous relationship. In Scotland, a minor child is under 16. Beyond just distributing assets, a well-drafted Will can help with Inheritance Tax and provide financial security for your children.
Estate Distribution and Inheritance Tax
When making your Will, you must consider whether your estate will be liable for Inheritance Tax (IHT). IHT is payable when the net value of your estate exceeds £325,000. However, some allowances and exemptions can reduce this burden. For example, you can transfer unlimited assets to your spouse or civil partner. There is also a residence nil-rate band of £175,000 if you leave property to direct descendants, but this tapers for estates over £2 million.
By structuring your Will correctly you can take advantage of these allowances. For example, you might distribute assets to your children up to the nil-rate threshold and leave the rest to your spouse or civil partner so your family gets the most tax-efficient outcome.
Legal Rights of Spouses and Children
Under Scots law certain family members have a right to your estate regardless of what your Will says. These are Legal Rights and apply to spouses, civil partners and children. Legal Rights only apply to moveable estate which includes money, investments and possessions but not land and buildings.
Beneficiaries must choose between claiming their Legal Rights or what has been left to them in the Will – they cannot have both. It’s essential to consider these entitlements when making your Will to prevent potential disputes or unintended consequences.
Appointing Guardians for Your Children
Providing for your children in your Will goes beyond financial considerations. If both parents were to die while a child is still a minor, there must be guardianship arrangements in place to look after them. Without explicit instructions in a Will, there is no assumption that a family member will step in as a guardian.
When choosing a guardian, consider who would best provide stability and meet your child’s needs. Discuss your intentions with the prospective guardian to ensure they are willing to take on the responsibility.
Also financial provision should be included in the Will so the guardian has access to funds to look after the child’s upbringing, education and general welfare.## Holding a Child’s Share in Trust
You may want to hold all or part of your child’s inheritance in trust until they reach a certain age. While children in Scotland reach majority at 16, many parents opt to delay full access to their inheritance until their children are older, such as 18, 21 or 25.
Trusts allow assets to grow while ensuring children don’t receive a large sum of money at an age when they may not be financially responsible. Provisions can be made to allow children to access part of their inheritance before the trust matures, particularly for educational or welfare needs.
Providing for a Disabled Child
If you have a disabled child, special provisions should be made to ensure they are financially secure after your death. This may include setting up a trust for their care and welfare while ensuring funds are available for their needs.
Guardianship arrangements may need to be formalised through the courts once the child reaches majority. Planning for legal costs associated with obtaining guardianship orders is essential to ensure continued care for your child.
Providing for Children from a Previous Relationship
With blended families becoming more common, it’s essential to consider how children from previous relationships will be provided for in your estate. If you leave your entire estate to your current spouse or partner, your children from an earlier relationship will only be entitled to claim their Legal Rights, which could be significantly less than your intended inheritance. Moreover, your surviving spouse or partner has no legal obligation to leave anything to your children when they die.
Using Liferent Trusts to Protect Your Children’s Inheritance
A liferent trust is a great way to provide for your current spouse or partner and your children from a previous relationship. A liferent trust can give your spouse or partner the right to live in a property for their lifetime with ownership passing to your children upon death.
Liferent trusts provide security for a surviving partner while safeguarding an inheritance for children, preventing potential disinheritance if the surviving partner remarries or decides to leave their estate elsewhere.
Why Professional Advice is Essential
Providing for your children in your Will requires consideration of legal rights, taxation and long term financial security. Given the complexity involved, seeking professional legal advice is key to ensuring your Will reflects your wishes and provides for your children.
Contact us today to discuss your options with our experienced solicitors if you want to create or update your Will to include provisions for your children.