Making a Will is an essential part of financial planning, particularly if you wish to leave assets to specific individuals (or institutions) when you die. However, it’s important to recognise that from the moment your Will is finalised, subsequent changes to your circumstances can affect who benefits from your estate.
One factor that could stop your loved ones receiving their intended inheritance is known as ‘sideways disinheritance’. Sideways disinheritance refers to a scenario where assets left as a part of the estate – usually for children or other beneficiaries – end up being diverted to unintended recipients.
If your Will was made some time ago and you’re unsure whether your chosen beneficiaries will receive your estate inheritance as intended, these examples may help you build up a clearer picture.
If you or your spouse are widowed, and subsequently remarry
If a surviving spouse decides to remarry, any assets they inherit – or which were jointly owned with their previous spouse – would typically be shared with their new partner.
That means any estate inheritance originally intended for beneficiaries from the previous marriage may be diluted. On top of this, if the new partner has their own children and outlives their new spouse, the original beneficiaries from the previous marriage could potentially be completely disinherited.
If a beneficiary gets divorced
An inheritance can become part of a divorce settlement, even if it hasn’t been received yet. It isn’t an automatic inclusion, as it can be argued that inheritance doesn’t form part of the matrimonial assets. Nonetheless, courts may consider inheritance when determining the final settlement, especially when it involves a substantial amount.
If a beneficiary suffers financial hardship
If you leave assets to someone who is experiencing, or has experienced financial difficulties, their creditors may seize a portion – or the entirety – of their share of the inheritance.
Estate inheritance using Trusts
- Protecting an inheritance for your heirs
Trusts can offer advantages that a simple Will cannot achieve in isolation, when it comes to distributing your estate.
For example, a trust can protect your beneficiaries from sideways disinheritance by ensuring the estate inheritance remains solely with your family line for generations to come. It acts much like a safety deposit box, accessible only to those with the ‘keys’.
In addition, trusts provide an alternative way for a family or a group of individuals to own assets, significantly reducing the risk of those assets being exposed to an individual’s personal liabilities.
- Shielding your heirs from Inheritance Tax (IHT)
When an individual passes away, their estate goes through the process of probate, preventing beneficiaries (such as children and grandchildren) from accessing your estate until probate is completed.
This can create additional financial difficulties for many families at a time of bereavement, particularly if there’s an IHT bill to settle. A trust ensures any assets left are instantly accessible to your beneficiaries, making a difficult time a little more manageable.
- Making a plan
When setting up the framework for passing on your estate to your beneficiaries, whether you choose to do so during your lifetime or after your passing, you’ll need a comprehensive approach.
Involving your family often helps. It gives you the opportunity to explain the reasoning behind your decisions and help alleviate any potential family conflicts. This is particularly critical when dealing with substantial wealth or an intricate family dynamic.
Amber River Estate Planning
At Amber River, our financial planners can collaborate with your family solicitor and accountant to find the right approach. In partnership, they’ll help to create a comprehensive estate plan that encompasses all facets of your wealth, properties, and business interests, ensuring no crucial details are overlooked.
For more on this, see: Who’s the best person to advise on Inheritance Tax?
Get in touch
To speak to us about your financial planning, or to arrange an appointment, call 0800 915 0000, or alternatively use our contact form here.
Disclaimer:
The information within this article was correct at the time of publishing, but laws and tax rules are subject to change. Your circumstances and where you live in the UK also have an impact on tax treatment.
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