We are a married couple with two young children. We have net assets worth
about £350,000. These comprise our house, worth about £150,000,
with the balance in investments that are divided between us roughly
equally. We have no wills and are concerned that our children should be
properly catered for in the event of our deaths. What issues do we need to
As you have no wills, your individually-owned assets would be distributed
in accordance with the Intestates Estates Act 1952. If they were less than
£125,000, they would be transferred to the surviving partner and form
part of their estate. If they were more than this, the surviving spouse
would take the personal chattels plus a statutory legacy of £125,000
with interest up to the date of payment.
The residue would be held 50 per cent in trust for the benefit of the
surviving spouse for life (and thereafter in statutory trust for the
children) and 50 per cent immediately in statutory trust for the children.
A statutory trust in respect of the surviving spouse effectively gives
them the right to the income for life but not the capital. It gives adult
children an immediate entitlement to the capital.
Statutory trusts are extremely inflexible in terms of their capacity to
make capital and income payments for the children. In the absence of
individuals appointed to look after the funds, the Court of Protection will
be given responsibility. This can take a very long time to agree to
As you have minor children, in the event of your deaths, guardians need to
be appointed. In the absence of wills, they will be appointed by a court
and might not be the individuals that you would have chosen. In order to
remedy these deficiencies, it would be appropriate for you both to arrange
Given the size of your estate, your wills do not need to make any specific
provision for inheritance tax although this should be kept under review.
You should, however, appoint guardians for your children and trustees to
administer any funds on their behalf until they attain an age when you
would be happy for them to receive the capital. The trust under which the
children's inheritance would be administered should have flexible
provisions as to the distribution of capital and income. It should also
have wide powers of investment.
If one of you is incapacitated, you may become unable to administer your
affairs. If this occurs, they would come under the control of the Court of
Protection. To avoid this, it would be appropriate to arrange enduring
powers of attorney. This type of power of attorney will continue to be
effective in the event that the person who has granted it becomes mentally
or physically incapacitated. If this occurs, it will be necessary for a
court to ratify it. Attorneys effectively stand in the place of the person
for whom they are acting.
The powers of attorney should be drafted to enable the spouse who is not
incapacitated to be the attorney for the other. It would probably be
prudent to include additional attorneys to ensure your affairs can still be
administered if both of you become incapacitated.
It would be appropriate for any life insurance and pension policies to be
placed into trust to provide for the children to be the initial
beneficiaries with an entitlement to any income that may arise. The
surviving spouse should be one of a number of individuals to whom the
trustees would have the power to make distributions of income or capital at
their discretion. This will ensure the capital does not form part of the
surviving spouse's estate, while ensuring that funds can be made available
The benefit of this type of arrangement is that it willensure the policy
proceedsare paid swiftly to their intended beneficiaries without the delays
associated with obtaining grant of probate. In addition, they will pass
outside the estate of the surviving spouse and avoid inflating this for
inheritance tax purposes.
Various types of trust exist with different tax implications. The
trustees' powers can be strictly drafted or they can be given a substantial
degree of discretion. It is normal for trusts to be governed by a trust
deed created by an individual during their lifetime or by a will.
There is a substantial body of statute and case law regarding trusts. This
is normally overridden by the provisions of a trust deed or will.
Conversely, where the trust document fails to indicate the powers of
trustees in a given set of circumstances, the provisions of the relevant
Act of Parliament or case law will prevail. It is most important that the
will or trust is widely drafted and that it is reviewed periodically.