What you need to know about protecting your children’s inheritance
For many people, ensuring that their children’s inheritance is protected is of paramount importance to them. There are a number of strategies that you can put in place to achieve this objective, you just need to determine which one bests suits you and your family’s circumstances.
Put a Will in place
By putting a Will in place, you get to decide who your assets go to, allowing you to make provision in your Will for them to pass to your children upon your death. If you do not have a Will in place then it is up to the government where your assets get paid and this may mean that your assets do not pass to your children, or do not pass to them in the manner that you desire. Play it safe and ensure things go the way you want them by taking the time to put a Will in place.
Testamentary trust
Let me introduce you to Testamentary Trusts. These amazing vehicles allow you to transfer your wealth to your children in the most asset protective and tax effective way possible. With an increasing number of marriages crumbling and divorce rates soaring, the last thing you want is your hard earned wealth passing to your child’s estranged partner in the event of one of your child’s marriage breakdown. By making provision in your Will leaving your children’s inheritance in a Testamentary Trust it protects their inheritance from any divorce or family law risks if your child’s relationship breaks down.
Additionally, you may have a child who works in a high-risk occupation – a doctor, financial advisor or perhaps carrying on the role of a director. Alternatively, your child may be an entrepreneur, taking risks in their own business operations.
If something adverse happened to your child whilst they were undertaking these roles and they were sued, they could be personally liable for them for any actions brought upon them by the aggrieved party.
Creditors and other associated parties could only seek recourse to moneys owed by your child from them in their own personal capacity. If your child had received their inheritance in their own name, and hence the assets were now individual assets, the creditors and other associated parties would have recourse in recovering funds owed to them by your child.
However, if your child’s inheritance was paid to a Testamentary Trust for their benefit at the time of your death then these assets would be held on trust for them and are not personal assets, hence the creditors and other associated parties would not have recourse in respect to these assets.
Blended marriages
If you have children from a previous marriage, it’s imperative that you obtain the appropriate legal advice in respect to how to protect your assets for your children. There are a number of options that you can put in place including a Binding Financial Agreement and a Mutual Wills Agreement.
There are also strategies that you can put in place which ensure that your assets pass to your children upon your death. Options are also available where you may wish for your partner to receive some benefit of some of your assets during your lifetime with all assets passing to your children upon your partner’s death.
Choose the right executor
If you have young children, it will be your executor who looks after your children’s inheritance until your children reach the age that you have stipulated in your Will that you would like them to receive your assets.
It is therefore imperative that you have the best person possible to undertake this role as you are effectively giving them the keys to everything that you own and control. That’s big. You need to appoint someone that you trust implicitly to undertake this role. You need to appoint your most trusted ally.
Your executor also needs to be financial savvy or receptive to obtaining the appropriate financial advice to enable them to look after and grow your children’s inheritance.
It is important that you seek the appropriate advice so that you can put the best strategies in place that protect your children’s inheritance in the best manner possible. There are a number of ways that you can protect your children’s inheritance, you just need to find the best one that works for you and your children.
Melisa Sloan, author of Big Moments, expert advice for conquering those moments that define us, is a lawyer, industry leader, author and board director who loves helping people put in place beautiful legacies. For more information visit www.melisasloan.com.au
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