Leaving your estate to children who are vulnerable due to an addiction

The newspapers regularly report the details of celebrities wills once their grant of probate has been issued and the will becomes a public document. The latest is the will of Coronation Street actor Johnny Briggs: it's been reported that he left his daughter Karen out of the will as he had disowned her in the 1980’s due to her drug addiction.

As we have testamentary freedom there is no obligation to provide for your children. However they would then have a potential claim against your estate for reasonable financial provision. For any parent not to provide for their child can be a difficult decision. Of course only Mr Briggs and the solicitor advising him knew how difficult this was for him and his full reasons behind this, but I've seen parents in similar situations agonise on whether to provide for a child who is dependent on drugs and/or alcohol.

The decision to make is whether to provide for that child. If you don't provide for them, then they have a potential claim against the estate. The risk of a potential claim is that this can cause a great deal of upset within the family and the estate value could be reduced by contesting the claim. If you do provide for the child, the risk is their inheritance is used to fund their addiction. 

Some clients will take the approach of Mr Briggs and not provide for their child. They will provide us with detailed family background setting out their reasons for this. They may also provide any evidence they have to justify their decision, for example correspondence with their child, medical records and details of court convictions.

Other clients will wish to provide for their child but ensure this is done so in a controlled manner so that their estate cannot be used to fund an addiction. This can be done by incorporating a discretionary trust in their will rather than leaving their estate outright to their vulnerable child.

A discretionary trust allows for the estate or part of the estate to be held by the trustees of your will (usually the same people as your executors) for the benefit of your beneficiaries. There will need to be more than one person named as the potential beneficiary of the trust, as otherwise this isn't a discretionary trust.

None of the named beneficiaries would have an absolute right to the income or to the capital of the trust. It would be at the trustees' discretion as to who benefits, when and on what terms. Your choice of trustees is crucial. The trustees must be people you trust to follow your wishes, who will act in the best interests of your beneficiaries and be strong enough to say no to requests from the beneficiaries if they are concerned as to how the funds would be used.

A separate, letter of wishes that is prepared at the same time as the will, guides the trustees as to how you would like the trust fund to be used, who should benefit and when. However, the letter of wishes cannot be binding on the trustees so as not to diminish their discretion but it will provide useful guidance to them.

The letter of wishes can provide guidance on the percentage of your estate that should be set aside for each beneficiary. It can set out how much income or capital should be given to a particular beneficiary and when. It is also common for the letter of wishes to include a paragraph confirming that large capital sums should not be given to a beneficiary who is dealing with an addiction or easily influenced by others.

The trustees have wide-ranging powers so that the trust is fully flexible. The trustees can accumulate income or pay this to the beneficiaries, plus they can pay out capital to the beneficiaries and transfer assets to other trusts. 

They can even purchase assets for a beneficiary and this includes a property for a beneficiary to live in. The property can be held in the names of the trustees and the beneficiary can be given a right of occupation. This means the property still doesn't belong to the beneficiary, so that if the property is sold the sale proceeds remain an asset of the trust and not an asset of the beneficiary.

Therefore for a child who is at risk of spending their estate on an addiction, the trustees may decide to purchase a property for them to live in. They may use the capital to pay rent if a property isn't purchased, to pay household bills and buy food and clothing but are likely to pay these direct to the third party supplier. They can use the capital for single purchases, for example household equipment and holidays but again are likely to pay for these direct. Depending on the circumstances the trustees may provide a weekly or monthly allowance to the beneficiary to provide them with an income but have the ability to withdraw this should the allowance be mis-spent.

If by the time of your death the beneficiary’s circumstances have changed and they have shown their addiction is under control and they will not be influenced by others, it is possible for the trustees to pay the capital out and terminate the trust. If this is done by the trustees by a formal deed within two years of the date of death it will be as though the trust did not exist.

It's therefore possible to provide for vulnerable beneficiaries under your will while ensuring the funds are not mis-spent by the assets being managed by trusted individuals under a discretionary trust.

If you have any questions on this topic please do not hesitate to contact the Tax, Trusts and Estates team.