Doubts about a spouse or child's financial maturity? There are ways to protect them and their in
Protecting inheritances by limiting a beneficiary’s trust discretions.
There are options for parents who have doubts about their child's capacity to sensibly manage a significant inheritance but would like to think that at some point those doubts would prove unfounded.
However, while most parents would still like such children to be the trustee of their own testamentary trust, they would like some safeguards to ensure that until the particular beneficiary had attained an appropriate level of maturity, the inheritance could not be withdrawn from the trust, or otherwise spent unwisely.
With clients who have such justifiable concerns, the usual solution is to ensure the inheritance is held in a protective trust with independent trustees such as siblings, a family friend, their accountant, or a trustee company. Yet, while this approach is appropriate with a child who may have an intellectual disability, it is rather heavy handed with someone who may mature in time.
A solution we have developed is to appoint the problematic child as trustee of their own trust but impose via our Wills some limitations on them in respect to exercising trustee’s discretions which are intended to either maximise flexibility in the way trusts are managed, or allowing for dispensing with a trust or ending it earlier than the vesting date.
In addition to enumerating the relevant discretions, we impose a requirement that they can only be exercised provided an independent trustee agrees that it is reasonable to do so. We would normally suggest the clients’ accountant or their successor fill that role.
Other constraints relate to withdrawing capital without the independent trustee first obtaining financial advice about the appropriateness of the purpose the trustee/beneficiary has in mind.
A further constraint can be that the limitations apply until the relevant beneficiary attains a specified age, for example, 40, 45, 50 etc.
For more information please call Terry Purcell or Dawn Wong on 02 8908 9700.