When an outright gift to your child is a bad idea

There are a number of reasons why you might consider an outright gift to a child in your Will to be a bad idea. The child in question may be bad with money for instance, or they may have a drink or drug problem and you want to protect them from being exposed to the temptation of using any windfall to slip back into their old ways.

Whatever your reasons for considering alternative options, you need to seriously consider what is right for you and the child that you are looking to protect.

Alternative options to an outright gift include:

• Relying on other children: Leaving gifts to other children to ‘do what is best’. Bear in mind however that families are not as mutually supportive as they used to be, and the other children may simply enjoy their windfall whilst failing to shown an interest in the other sibling. Even where the concern for the other sibling is genuine however, the funds will legally belong to the children to whom it has been left and could be lost on insolvency, divorce or prior death. There is also a serious risk of the sibling making a claim against the estate if they are left out of the Will. If you are looking to rely on other children or another beneficiary in your Will to do what is best, you need to at least consider a letter of wishes setting out how you would ideally like the funds to be dealt with.
• A life interest: This is where a trust is set up so that the child concerned can receive income from funds held for their benefit for life, with the capital (i.e. the lump sum) passing to their children (i.e. grandchildren) on their death, for example. There may also be a provision in the trust to provide for the advancement of capital to the child at the trustees discretion.
• A discretionary trust: This is where a trust is set up to provide a number of beneficiaries a discretionary benefit in the trust fund. No one person is absolutely entitled to any the trust money as distribution of the fund is at the trustees’ discretion. As with all trusts however, H M Revenue & Customs would have to be notified of the existence of the trust and there may be tax consequences to be considered. The trust also has to be administered properly and accountants and professional advisers may therefore need to be employed; this will in turn increase the administration expenses associated with the trust.