Using a Trust to prevent Sideways Disinheritance

What if you or your spouse remarries after becoming widowed?

Should a surviving spouse remarry following the death of their husband or wife, any assets that were owned jointly, or were inherited by the survivor would typically be shared with their new partner.

The inheritance intended for the beneficiaries of the original married couple would therefore be diluted, especially if the new partner has his or her own children. Original beneficiaries can be disinherited completely if the new partner outlives the original spouse.

Placing assets in Trust would prevent this, whereas a Simple Will would not.

What if a beneficiary were to become divorced.

Assets left to a beneficiary via a Will are highly likely to form part of the financial settlement with their husband or wife if they were to become divorced. In fact, even whilst you are still living, the inheritance a beneficiary is to receive in the future can be taken into consideration and a portion handed over when it is received.

Placing assets into Trust means that only those named as beneficiaries have any rights or access to those assets.

What if a beneficiary were to die prematurely leaving younger children?

If, for example, you left assets via a Will to a married son who had children and the son were to pass away whilst your grandchildren were still young, your son’s inheritance would typically pass to your daughter-in-law.

If the daughter-in-law were to remarry, those same inherited assets would normally be shared with her new partner. The grandchildren’s inheritance would be diluted further if the new partner had their own children. If the daughter-in-law did not outlive her new husband, the grandchildren could be completely disinherited.

If assets were placed into a Trust, you could ensure that the daughter-in-law had access to funds in order to look after the grandchildren until they became adults and prevent any new partners from having any access or rights to the inheritance.

What if a beneficiary suffered financial hardship?

If you leave your assets to a beneficiary using just a Will, upon death the ownership of those assets transfers to whomever you have left them to.

If the beneficiary is suffering from, or has suffered financial difficulty, their creditors could seize their inheritance.

As the Trust survives after your death, your assets remain in the Trust and are therefore beyond the reach of the beneficiary’s creditors but the beneficiary can still receive the benefit of their inheritance.

Preventing a successful challenge

What if someone excluded from my Will challenges it?

Any person whom you have excluded from your Will who would have inherited had you not made one is able to make a challenge. A challenge can also be made by anyone claiming to have evidence that you made him or her a promise.

There are several legal bases for a challenge, but one of the most common is made under the ‘Provision for Family and Dependents Act 1975’. This Act enables a person who has either been disinherited entirely or left only ‘unreasonable’ provision, to bring a claim against a person’s estate for greater financial provision. They are often successful.

If assets are in Trust, there is no movement of ownership after you have passed on and therefore only those named as beneficiaries have any rights or access.

A Trust is without doubt the most robust method of preventing a successful challenge.

Reducing the adverse affects of inheritance

What if a beneficiary is, or becomes reliant on state benefits?

If assets are inherited via a Will, they are classed as the beneficiaries’ capital. This will have a dramatic effect on any means tested state benefits and could ultimately lead to the complete loss of the benefits that your heirs may rely on.

If the capital value of the assets remains within a Trust, the beneficiary could avoid the loss of state benefits but still receive the benefit of their intended inheritance.

Inheriting at the right time

What if a beneficiary isn’t ready to receive their inheritance?

Sometimes, it isn’t always best for a beneficiary to receive their inheritance in one go. If they are young, a vulnerable adult or struggling with drug, alcohol or gambling addictions for example, it might be preferable for their inheritance to be released in stages and under the supervision of a trusted friend, family member or professional.

A Trust provides the flexibility to accommodate this arrangement.

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