Ask the Experts

PwC Partner Chris Leatham – September 2015

My husband and I ran a successful business for the majority of our working lives and having recently sold the business, we’re holding the funds in a family trust. We want to make sure these funds go to our children when we’re gone, but have heard some horror stories of children receiving inheritance and losing this to relationship disputes. How do we ensure our wealth goes to our children?

You’ve already taken the first step by opening up discussion on what will happen with your funds when you are gone, and how you want this to be managed. Understandably, people often avoid discussing sensitive issues around inheritance; however dealing with these difficult conversations now can save a lot of heartache later.

As the funds are held in a trust, having a memorandum of wishes is a good place to start. This document is like a ‘will’ for your trust and sets out how you want the trust to be managed, particularly after your death. A memorandum can state who the funds should be distributed to and when. It’s common for funds to be held in trust until children reach a certain age; 25, 30, or whatever you think is appropriate. A clear memorandum of wishes ensures everyone is aware of what you want to happen, and also helps to encourage conversation between you and your children on the issue.

The next consideration is how to limit the possibility of your children losing some or all of their inheritance to a relationship partner. One option to reduce this risk is to set up trusts in advance for children. These trusts may not hold any assets until they are required, but would be available to receive distributions from the family trust when the time does come assuming the trust deed for your family trust allows this. An advantage of this structure is that the assets distributed to the trusts will be much more difficult for any relationship partner of your children to access.

If a trust is set up for the children, choosing the trustees is also something to give thought to. Trustees are the people who look after the assets of the trust and decide how to distribute assets and income to the beneficiaries. A possible mix of trustees could be you, a professional trustee and the child. Having a professional trustee helps ensure the trust manages its affairs appropriately and complies with legal requirements. If the trust is set up in advance, there is also the advantage that you can select a professional trustee that both you and your children are comfortable with. If you choose to also have your child as a trustee, this will give them significant influence over how the assets in their trust are dealt with. There are costs associated with setting up trusts, maintaining them, and employing professional trustees, and these expenses should be considered. However, it may also be possible to set up your children’s trusts on your death rather than incur the cost of running the trusts before they are really needed.

There are of course other options to protect your children’s inheritance. The best solution will be based on your individual circumstances and professional advisers can help you to work out what’s best for you in your situation.

As published by Fairfax in September 2015.

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