At Ridley & Hall, we provide specialist advice to adoptive families on a range of issues such as Wills. Many families adopt to provide a loving home to the most vulnerable children in our communities. Sadly, some of these children carry emotional baggage that comes from the difficult start they have had to their life. As a result of their experiences, some children may suffer with attachment issues, have special education requirements and other mental health challenges.

In addition, many parents have concerns that given their child’s circumstances, they could be susceptible to unscrupulous third parties who try to take advantage of their financial position. This often leaves them in a difficult position when deciding how best to make provision for their minor children in their Wills.

One option is making an outright gift to an adoptive child. However, this is often an unsatisfactory option for adoptive parents as many parents are concerned about their child’s ability to cope directly receiving a significant sum by way of inheritance.

Another complicating factor is many adoptive parents adopt children as infants. The adoptive parent cannot know with any certainty what the children will be like or what their needs may be when they reach that age, it is therefore difficult to decide whether or not it would be appropriate or sensible to gift money to them outright either when they reach the age of 18, or at some higher age that they decide (eg. 21, 25, 30).   There can be understandable concerns about whether a young adult would be able to manage money themselves.

What should adoptive parents do instead

The alternative is to use a “a discretionary trust” that would allow a fund to be held on the children’s behalf indefinitely, from which they could receive predominantly income but also capital according to their needs, paid at the discretion of the fund Trustees, and managed by those Trustees.   This form of protection approach is useful for circumstances where the child may have additional issues (eg. emotional, mental health, learning disabilities), if management of money themselves may cause them difficulties, or if they may be vulnerable to exploitation by others if they inherit outright.

Using a Discretionary Trust means the child could benefit from money you have left to them beyond 18 (and any higher specified age), without the difficulties that managing it themselves could present.  It would also mean that any benefits or grants they may be entitled to, would not be affected (as would be the case if they received a capital lump sum outright).   Discretionary trusts are used as they are the most flexible format for trusts.

You must select more than one beneficiary for the Discretionary Trust to operate. The beneficiaries can be named individuals or classes of people for example  “children” or “grandchildren”. You can also name charities or companies. In addition, you can choose people who haven’t been born yet to be potential beneficiaries. This allows greater flexibility for planning for the future.  The beneficiary doesn’t have an automatic right to the entitlement just because they fall into the specified pool of beneficiaries. The Trustees have the discretion to decide the following:

• Which beneficiaries benefit from the Trust fund;
• How much beneficiaries receive from the Trust;
• How best to use the income and capital of the Trust fund for the benefit of the beneficiaries; and
• The timing of when a beneficiary receives anything from the Trust.

The role of the Trustee is therefore extremely important. We can help to advise you on the most suitable person to act as your Trustees. This decision is important as these individuals would be responsible for managing the Trust on behalf of the child and/or other named beneficiaries.

We also recommend that adoptive parents put in place a detailed “Memorandum of Wishes” or “Letters of Wishes” setting out their thoughts as to how the trust funds will be applied.  These can then be the vehicles by which you can direct the amount of money you wish to be available to the beneficiaries, whether this is phased, and any conditional milestones.   However, ultimately the operation of the trusts will be at the discretion of the Trustees, taking into account the children’s circumstances. We can help you put together a bespoke Letter of Wishes dependent on your family’s circumstances.

You should be aware that there are lots of different types of Trust options that can be used to protect a vulnerable beneficiary for example a Life-Interest Trust. You can place your estate in a life interest trust, with your child named as the lifetime beneficiary. Again, this allows the trustees to provide for the needs of a vulnerable beneficiary without the risk of the beneficiary having to manage the fund themself. The risk with this type of trust is that it can be wound up by beneficiaries.

It is therefore vitally important that adoptive parents take expert legal advice to ensure that the most suitable Will is put in place. At Ridley & Hall, we can offer professional legal advice in relation to Wills for adoptive parents. Please do not hesitate to contact our friendly and approachable Wills & Probate team via our 24/7 live chat facility or free phone 0800 860 62 65 for further information or to arrange an appointment.

Lucy Pickles – Solicitor