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Where Taxpayers and Advisers Meet

What is the best way to provide for my young children?

Single Dad
Posts: 7
Joined: Thu Apr 13, 2017 3:16 pm

What is the best way to provide for my young children?

Postby Single Dad » Tue May 15, 2018 12:16 pm

Hi, I'm hoping I can get some informal advice prior to seeing a solicitor to redo my will.

I am a 47 year old father to two boys, aged 11 and 9. My wife passed away last year and I have a major health issue whereby my maximum life expectancy is likely to be a maximum of another 5 years or so. I have a house worth around £550K with a outstanding mortgage of £160K. I have my own pension pot in a SIPP of £600K and have inherited my wife's SIPP of £300K. I also have cash and other investments of around £150K.

As things stand, I am still employed and should I die whilst still employed I would expect a death in service payment to be made which would be very significant, slightly in excess of £1M. I understand that this death in service policy is written in trust.

In terms of the future arrangements for my children, my sister is my appointed Guardian and the boys will go and live with her and her family. I am sure my question is a relatively common one and my wishes also are unlikely to be out of the ordinary.

What I want to achieve is the best structure possible to hold the money for the boys until they reach what I would consider to be an age where they *may* be sensible enough to realise they have an opportunity to set themselves up for life and not go out and blow it all on fast living. Obviously I am also looking to do this in a way that would be as tax efficient as possible.

Some of the money would need to be paid out to my sister on an annual basis for the boys upkeep. I also envisage the boys receiving some form of small lump sums at age 18, 21 and then to finally take their full share at no earlier than age 25.

Is this achievable or are there going to be inevitable IHT and Income Tax consequences here?

Thanks for any help in advance.

pawncob
Posts: 4104
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: What is the best way to provide for my young children?

Postby pawncob » Tue May 15, 2018 12:20 pm

Yes it's possible, but to establish the Trust will involve some IHT problems.
You need to take specialist advice as this is a complicated situation.
With a pinch of salt take what I say, but don't exceed your RDA

Single Dad
Posts: 7
Joined: Thu Apr 13, 2017 3:16 pm

Re: What is the best way to provide for my young children?

Postby Single Dad » Tue May 15, 2018 12:25 pm

Thanks for the swift response. What 'profession' do I need to see? A lawyer or accountant? Or both?!

someone
Posts: 316
Joined: Mon Feb 13, 2017 10:09 am

Re: What is the best way to provide for my young children?

Postby someone » Tue May 15, 2018 12:51 pm

That really is an unlucky roll of the dice for everybody. :-(

I can't give any advice except:

1 keep notes on what you asked for and were told to do and why (and give copies to your sister)

2 Get a professional review every year.

Based on other questions that come up here it appears that firstly the advice isn't always the best with hindsight. If someone giving you advice screws up, they have insurance. But your children and sister will be hampered showing that you were given bad advice if they cannot show what you said you wanted.

Secondly, tax law changes. So the advice might not be bad at the time, but might become sub-optimal by the time you die. I suspect this is a bigger reason for the questions that imply advice was bad.

AdamS93
Posts: 121
Joined: Tue Sep 26, 2017 6:28 pm

Re: What is the best way to provide for my young children?

Postby AdamS93 » Tue May 15, 2018 1:06 pm

A bereaved minor trust is an option.

With the figures involved, probably best to arrange a meeting with a medium sized practice so that they can offer all the necessary services under one roof.

Single Dad
Posts: 7
Joined: Thu Apr 13, 2017 3:16 pm

Re: What is the best way to provide for my young children?

Postby Single Dad » Tue May 15, 2018 1:16 pm

Thanks for further replies.

By "medium sized practise" what exactly are you referring to? An estate planning service / tax consultancy / solicitors?

I am very keen for obvious reasons to get this right and I am also keen to keep it as simple as possible so getting it done all under one roof as you suggest appeals greatly!

AGoodman
Posts: 383
Joined: Fri May 16, 2014 3:47 pm

Re: What is the best way to provide for my young children?

Postby AGoodman » Tue May 15, 2018 1:37 pm

A solid private client lawyer should be able to cover the tax (which is not actually too complicated here) and draft the documents.

If nobody jumps out locally, try the register on the step website - www.step.org/member-directory

I suspect that a bereaved minor trust will not be for you because one of the main conditions is that the assets must all vest (ie the child receives their share) when a child reaches 18.

The two options I would consider for your will would be (a) a fully discretionary trust - your sister could also be a beneficiary to make it easier to make payments to her rather than always have to identify a benefit to your children); or (b) an interest in possession trust which just gives them the right to income and the trustees discretion over when to pay them the rest. Income can be accumulated while they are under 18. The former is more flexible (trustees can withhold all the income indefinitely) but would not allow you to claim the residential nil rate band should you need it (you may not) and might incur small IHT charges on capital distributions and 10 year anniversaries. The admin would be greater for distributions even if there was no tax.

There is also an "18-25 trust", which site between these two, but this must vest at 25.

It looks as though the insurance and SIPP could be much greater than your personal assets so the important work is to ensure that they dovetail with the will and are set up appropriately to allow monies to be managed. I don't know whether it will be possible to put these monies into a trust beyond the children's 18th birthday.

Single Dad
Posts: 7
Joined: Thu Apr 13, 2017 3:16 pm

Re: What is the best way to provide for my young children?

Postby Single Dad » Tue May 15, 2018 2:07 pm

Thanks for that very useful info. I have now checked the step website and found someone locally to assist.

:D


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