Discretionary Trust Inheritance - Case Study
The People
JS had two brothers and four nieces and nephews. She wished to leave her estate to her nieces and nephews equally.
The Problem
One of JS’ nephews was potentially on the verge of bankruptcy. If he were to inherit either just before becoming bankrupt or whilst bankrupt, his inheritance would be payable to the trustee in bankruptcy and would be used to repay his debts.
JS’ niece was in a second marriage and had been diagnosed with terminal cancer. JS was fond of both her niece and of her niece’s daughter. JS did not want her great-niece to miss out on her inheritance if her niece were to die shortly after JS when the funds would pass to the niece’s husband. JS also did not want her niece to feel left out by leaving the funds directly to the great-niece.
The Solution
A discretionary trust was included in JS’ will. An accompanying letter of wishes informed her chosen trustees of her wish that the near bankrupt nephew should be entitled to a one-quarter share of the estate but only once he was clear of his bankruptcy.
The letter of wishes also informed the trustees that funds could be used for JS’ niece’s care and other expenses to assist her. On the niece’s death, the balance of that quarter could be paid to JS’ grand-niece.
As the letter of wishes is not binding, JS’ could be sure that her great niece would be the ultimate beneficiary of her niece’s share and her wishes concerning her nephew could be adhered to without losing funds to the trustee in bankruptcy.
Who to contact
Paul Tobias
Senior Partner, Head of Trusts & Investments
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