Leaving funds to a child in your will

It is routine for a parent to leave assets to their children and/or grandchildren. However, unless stipulated clearly in your will, there are several things that can go wrong which will stop your wishes being carried out as you meant them.

This is according to David Knott, a fiduciary expert and Director at Private Client Trust who says that unless a will names trustees, grants the necessary investment powers, and provides for the creation of a trust to administer the assets to the minor beneficiary, the wishes of the testator with regards to minor beneficiaries will be thwarted.

“The Master has no power to read into a will something which is not contained within the document,” cautions Knott, who goes on to say that if a will does not create a trust with all the conditions spelt out the executor will be obliged to pay any award owing to a minor beneficiary to the Guardians Fund.

“This Fund is essentially a savings account managed by the Master to which all funds accruing to a minor or unknown beneficiary are paid. The funds will only earn simple interest which is credited from time to time. When the minor turns 18, or when the unknown beneficiary has been identified, the capital plus accrued interest can be claimed back. The interest rate paid at present by the Fund is not bad but historically this has always lagged commercial rates.”

Knott advises that it is not enough to earn interest only and the capital sum eventually claimed by the minor may have generated a negative real return and a greatly reduced spending power at that later date. Whereas, had the funds been invested more prudently via a trust, say into a balanced or asset allocated unit trust, the beneficiary would at least have enjoyed capital appreciation as well as a revenue return.

”The guardian of a minor can make application to the Guardians Fund for the release of monies from time to time for the maintenance of the minor as the Master does have this discretion. “However, I would rather not rely on a stranger having the discretion to allow or not when I could have spelt out those wishes in terms of a trust created by my will.”

For many people it is tempting to prepare your own will, or amend an existing one yourself – especially in rushed or changed circumstances. However there are many pitfalls ready to trap the unwary should you follow this course. Seek professional advice to avoid such issues,” concludes Knott.

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