Intergenerational Wealth CPD course  

The steps a client should take to ensure trust wishes are kept

This article is part of
Guide to passing on wealth after you die

The steps a client should take to ensure trust wishes are kept

Many people put money in trust for younger generations, but the policies are not reviewed very often, and families change – divorce happens, additional children arrive.

So what steps should a client take to ensure their wishes are kept?

Trusts can be an excellent tool for financial planning, but just like a will they need to be monitored to ensure they remain fit for purpose. 

Trusts separate legal and beneficial interests in property.

The legal ownership rests with the trustees who are legally obliged to act solely in the best interest of the beneficiaries. A trust therefore provides a framework for ensuring that the best interests of the children prevail. 

They can be particularly useful for ‘complex families’, ensuring one parent’s wealth is used in the specific way they want if they were to pass away.

Shaun Moore, tax and financial planning expert at Quilter, cites an example where if a married woman has an inheritance, which she then specifically earmarks for her children’s education, she should consider putting the money in trust. 

Doing so shields it from potential misuse because, if she died without leaving a will, the money would pass over to her husband who could then decide to spend it differently. Similarly, trusts can help protect the wealth in the event of a divorce.

Moore says: “Trusts can provide you with control and certainty over how and when your wealth is distributed, and unlike wills, trusts are not public documents, providing privacy over your wealth. 

“There are a wide range of trusts to choose from, which have varying levels of access, flexibility and inheritance tax efficiency to suit the needs of the individual.”

Choosing the best trust

According to Ian Smart, product architect at Royal London, the first thing to consider is the type of trust that will be relevant to the client.

A bare trust, for example, will mean the beneficiaries are fixed from the outset and cannot be changed.  

“This would be appropriate if you don’t want the trustees to be able to choose who to give the benefits from the policy to.”

Bare trusts might be considered the simplest kind with the fewest formalities, which means they are often thought of as little more than family agreements; however Martin Stanley, chartered financial planner at Rowley Turton, says legally there is more to it than that.  

Additionally, the child’s legal interests are sometimes overlooked when family circumstances change – more children arrive or the couple divorces – and generally being of modest value, they are often neglected in terms of sensible investment planning.

But Stanley adds that the child’s own interests are usually taken a lot more seriously if the trust is of a more formal kind, and especially if there are other trustees than just the parents – for example an aunt, uncle or grandparent.  

He adds: “If the money’s also been gifted by one of those – most commonly the grandparent – it also gives them more scope to ensure that their wishes are honoured as to how the money is invested or used.