Parents may find themselves in a difficult situation when a child struggles to manage money due to incapacity, mental health issues, or substance misuse. Some consider entrusting that child’s share to a sibling for management, but this approach can lead to complications.

For instance, if you have a son and daughter, and your son cannot manage money effectively, leaving his 50% share to your daughter to manage may seem logical. However, this arrangement poses several risks:

  1. If your daughter encounters financial difficulties, her creditors could claim all her assets, including her brother’s share.
  2. Should your daughter pass away before your son, her inherited assets might transfer to her spouse or children, leaving your son without his intended inheritance.
  3. In case of divorce, your daughter might lose your son’s money in a settlement.

A more secure approach is to allocate shares individually, with your son’s 50% placed in a Discretionary Trust. Your daughter or other trusted individuals can serve as Trustees, protecting your son’s inheritance from the aforementioned risks.

Establishing a Discretionary Trust offers strategic risk mitigation. Ring-fencing your son’s inheritance within the trust protects it even if unforeseen circumstances affect your daughter or other trustees. Trust assets are managed separately and are not considered part of any trustee’s estate.

Discretionary Trusts also offer flexibility to address beneficiaries’ changing needs. Trustees can distribute funds under the beneficiary’s evolving circumstances and welfare requirements.

These trusts can hold various assets beyond money, including property and investments. This comprehensive approach allows trustees to administer well-rounded support for the beneficiary’s overall financial well-being.

When considering a Discretionary Trust, it’s advisable to consult with experienced professionals. They can guide you through trust complexities and tax considerations and help establish the trust to maximise financial benefits for the beneficiary.

In conclusion, a Discretionary Trust serves as both a safety net and a proactive financial planning tool for beneficiaries with limited capacity to manage funds. It helps preserve your legacy and ensures optimal utilisation to support your beneficiaries’ long-term needs, offering you peace of mind and securing their future with ILAWSSCOTLAND.

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