Head of Lodders’ Private Client team, Martin Green, summarises the key points new parents should consider to help you reach a decision.
Although too many of us put off making a will, when you have the added responsibility of a child, the importance of a will significantly increases. If you are a new parent, here are a few questions to help you decide when – not if – you need a will.
Q If you die unexpectedly, do you want your spouse or partner to inherit all your property interest and savings and investments? Do you trust each other to leave everything in turn to your child/children when you have both died? Or are alternatives to this academic because your spouse or partner would need everything anyway?
If you are on the property ladder, you have probably bought your home in joint names with a joint mortgage. The most common type of joint ownership is ‘joint tenants’, which means that if one of you dies, legal title and ownership (and the mortgage) passes automatically to the other. In other words, the will has no bearing on the situation.
Joint bank accounts and investments also pass automatically to the survivor.
The other way that properties can be purchased in joint names is as ‘tenants in common’ in agreed percentages, meaning you still own the property together, but have agreed in advance your respective shares in the proceeds of sale. If you split the beneficial ownership in this way into say separate 50/50 shares, your will would determine where your 50% goes on your death.
If you are married, no inheritance tax (IHT) would be payable because gifts between spouses are exempt. IHT is an important topic that we have covered in other, dedicated information on our website.
You might have jewellery or family items you want to pass to your child/children or back to your own family, and the most convenient way is to leave your ‘chattels’ to your executors and request they follow any letter of wishes, for which you should write an informal list to place with your will.
This list is not binding on your executors but if you have appointed the right people you would expect them to honour your wishes. The key advantage is you can add to or amend this letter without having to change your will each time.
Q Who do you want to appoint as executors if there has been a disaster and you have both been killed leaving only young children?
Executors are named in the will, and are the people you choose to put into effect the terms of your will. Their job is to collect in the assets of your estate, pay any tax and other bills and then deal with the net estate as you specify in the will. On the first death, you might decide to keep things simple and just appoint your spouse/ partner. You can have up to four executors, which is probably too many, and most people choose two. In fact, Lodders recommends appointing two executors with one reserve just in case one of those chosen is unable to take on the role when the time comes.
Once the executor has carried out their role and collected in all the assets, the trustees then manage and invest the assets for the benefit of your child/children, until they are old enough to handle money themselves. (See Trusts and trustees below.)
It is often thought a beneficiary cannot be an executor, but this is not the case.
You should discuss and agree who you would want to look after and bring up your child/children if you both die together. In the early years, you might want to choose a sibling who already has children, or even parents, but this needs to be a joint decision. Over time your choice of guardians may change, and may be influenced by where you are living, where your children are at school, and where their friends are.
Guardians can be nominated either in the will itself or by a separate guardianship deed. The advantage of the latter is that you can also set out your thoughts about the child/children, their education, hobbies and contact with family.
Q Who do you want to choose to act as trustees whilst the children are under the vesting age?
If you have both died, the guardians will look after and bring up your child/children. Your executors and trustees will handle the financial side. Executors will do all the initial sorting, but you need to decide who you think will best look after the money on behalf of your child/children whilst they are young.
Executors can be nominated to act as trustees, but they do not have to be. When choosing your trustees, think about who will do the job well and have a good rapport with the guardians. Although a guardian can also be a trustee, it can be awkward because of the conflict of interest in being responsible for both welfare matters and the purse strings.
So far as creating trusts for your child/children is/are concerned, you do not need to include elaborate provisions in the will. Leaving assets in trust for children subject to an age contingency creates implied trust provisions. The key question is:
Q At what age do you think that your child/children will be old and sensible enough to inherit capital?
The typical age range is from 18 to 25. If, for example, you specify that the vesting age should be 25, the child/children would become entitled to the income at 18 and the capital at 25. The will should incorporate wide powers, so the trustees can pay or apply income or capital for the benefit of the child/children whilst they are growing up. This could include paying for school fees and household and living expenses. The trustees would need to develop a working relationship with the guardians, so the guardians have the financial support you would wish them to have.
Monies will need to be invested whilst the child/children are under the vesting age. Acting as a trustee involves considerable responsibility. If you have a property and perhaps some life cover, the values involved can be high. With volatile markets, it is not easy to make the right investment decisions.
Q If there is a complete disaster and you and your child/children are all killed, who would you want to benefit from your combined estates?
It is important to appreciate that if you do not cover this scenario, and you all die together, the eldest of you is deemed to die first. In other words, the estate of the older of the two of you passes to the younger, and under the intestacy rules everything would go to the family of the youngest of the two of you.
Therefore, it is prudent to include ‘long stop’ beneficiaries. This typically involves splitting the estate between your two respective families. It is a decision that people often find difficult, but it is more important to cover the main points above than to get stuck on this and delay signing a will as a result.