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Family Protection Will- A Case Study

A Family Protection Will ensures that your hard earned estate stays within your bloodline and can't be fettered away by interfering third parties.

Meet Mr and Mrs Smith- they have 2 children, John and James.

John is currently going through a nasty divorce

James is disabled, he is in receipt of disability benefits and lives at home with Mr and Mrs Smith.

Mr and Mrs Smith have a house worth £300,000 and savings worth around £100,000. Therefore, the total value of their estate is £400,000.

They are concerned about care fees. However, they are more concerned that John’s soon to be ex-wife does not receive any of their hard-earned money and that James will be properly looked after when they have passed away.

The Family Protection Will

A Family Protection Will helps to control what happens to any inheritance received by your family after you have passed away by using a Discretionary Trust. A Discretionary Trust is flexible and means that the beneficiaries have no automatic right to receive assets. Instead, it is the trustees, who can be a friend or family member, who have the power to decide when the beneficiaries should receive the money or property held in the trust, and what it can be used for.

So in the scenario of Mr and Mrs Smith they have two reasons why they may want to include a Discretionary Trust in their Will.

The Family Protection Will and the Daughter-in-Law

As John is currently going through a divorce, if his parents passed away and he received some inheritance it is possible that this money could be taken into account in his divorce settlement.

For example if Mr and Mrs Smith both pass away and John inherits £200,000 and John is not yet divorced, this £200,000 forms part of John’s estate. His divorce settlement states that 50% of everything must go to his wife. So she receives £100,00 of Mr and Mrs Smith’s money- definitely not what they intended.

Alternatively, John inherits £200,000 and then suddenly passes away. As he is still married, his wife inherits everything. She then marries again and all of Mr and Mrs Smith's hard-earned money is spent by a stranger. We call this sideways inheritance and having a Family Protection Will can prevent this. It is often an unintended consequence of having a mirror will.

If Mr and Mrs Smith had used a Family Protection Will then John would have received his inheritance into a Discretionary Trust. John, if reliable, can be his own trustee so that he is still in charge of how the inheritance is used. John’s children can also be beneficiaries of the trust so that if anything happens to John, anything that remains within the Trust will automatically pass down to his children. This means that John's inheritance stays within the Smith Family and his ex-wife is not able to access the money within the Trust.

Any inheritance received into a Discretionary Trust can also be protected from being used in a divorce or bankruptcy order, keeping anything you pass down to your children in your family.

The Family Protection Will and a Disabled Beneficiary

Mr and Mrs Smith may also want to use a Family Protect Will to help their son, James. As James is unable to manage his own finances, it would be unwise to leave him a lump sum. Any lump sum received by James would also effect his entitlement to any means tested benefits.

It would also not be fair to leave James nothing and this could be challenged.

Mr and Mrs Smith could leave James’s inheritance in a Discretionary Trust. His brother or another trusted person would be able to manage the funds on James’s behalf and make sure that he has everything he needs. It would also help to ensure that James continues to receive all of the benefits he is entitled to.

The Family Protection Wills cost Mr and Mrs Smith £540.

Discretionary Trusts have quite complex tax rules attached to them and they are not recommended for most clients, we will only recommend this type of Will in very specific circumstances. If you want to learn more about how this Discretionary Trusts (sometimes called Bloodline Trusts) you can read our Why You DON'T need a Bloodline Trust Will article here.

If you would like to know more about Family Protection Wills and if they are right for you and your family, you can fill in our contact form here, one of our advisers will then call you within 24 hours to discuss your needs.

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