Tailored Trusts for Diverse Family Needs.
Reviewing how your assets are structured regularly, so they cater to the changing needs of your family can avoid heartache and headaches, as shared in our scenario below.
Richard and Julie always marvelled to each other how their three children, all brought up in the same environment could be so different. Their eldest son was a scientist, very bright but without a practical bone in his body. The middle son was an investment advisor and their youngest was a stay at home Dad with a very successful and ambitious partner.
Richard and Julie had established a trust many years ago on the advice of their lawyer. Overtime they built up quite a sizeable commercial property portfolio. As they were heading into their mid 70s, they thought it would be a good time to review their structuring to see if the trust was still the best vehicle for them. They also had been talking to friends who had recently updated their wills. They thought that theirs were ok however, it had been many years since they had completed them.
Instead of going to their usual lawyer, Richard and Julie made a time to see a lawyer recommended by a friend, who specialised in asset structuring.
They felt that they really needed some robust advice and analysis of their current structure.
They sent copies of all their documents ahead of time so that the lawyer would be prepared when they met.
The first thing the lawyer asked them was if they had ever heard of a document called a memorandum of guidance or letter of wishes. Richard and Julie had heard that terminology before but were unsure whether they had one or not. The lawyer likened it to a will but said that it dealt with the trust assets rather than their personal assets. Richard and Julie’s wills dealt with all their assets with no distinction between personal and trust assets. The lawyer said this was incorrect as they couldn’t deal with trust assets in their will.
She asked them what they wanted to happen with the trust assets if they both died. They said that they would really like the trust to continue, as the commercial property assets would provide a healthy income for their three boys and their families. They thought that their youngest two children might be good trustees, but their eldest son, while clever, might not be able to grapple with the practical elements of commercial property and the trust.
The lawyer began to ask more questions, drilling down into the family dynamic.
The more they talked, the more Richard and Julia realised that it was likely to be unworkable for the three boys to be bound together in the same trust going forward.
They had very different needs and requirements and it could cause some major family disputes if they had to keep the assets together. The income of the commercial property would be of benefit to their eldest son, but the middle son had an interest in the share market and would rather have the opportunity to look for financial growth there. Whereas their youngest son had a large mortgage and so debt reduction would be important to him.
The lawyer explained that they could still put in place mechanisms that would ensure that whatever the boys received from Richard and Julie’s trust could be within a trust structure to protect each of them from relationship property and other “threats”. But that it could be done in a bespoke way which gave each of their son’s flexibility to manage their affairs in a way that was appropriate for them.
It is so important to review your affairs regularly to ensure that they still cater to the changing needs of your family. When children are young it may be appropriate to hold assets together in the event that Mum and Dad have both died, but as they get older and end up in very differing circumstances, it is important to keep evaluating what is the best structure for them and their changing interests.
If you feel you could use some specialist advice, don’t hesitate to contact the Trusts & Wealth Protection Team.
