Many healthy young people are under the impression that they don’t need to consider tax and succession planning issues until they reach, at the very least, middle age.
However, all adults (including young adults) should, as a bare minimum, have a will and Power of Attorney in place. In fact, it is legally possible in Scotland to create a will from age 12 and put a Power of Attorney in place from age 16. Additionally, there are certain situations in which careful planning is required in order to protect both your own and your adult child’s financial and personal position.
Perhaps your child has received a cash sum from you or a grandparent (or even a cash legacy from their estate)? Or your own parent may have died and you wish to redirect some or all of your inheritance to the next generation?
This may be the first time that your child has ever experienced holding large sums of money and while this can be an interesting and exciting new opportunity for them, this opportunity comes with the responsibility of how they will generally structure their finances going forward and how the funds will be applied.
Some considerations for you and your child include:
- Should funds be invested to ensure they are not eroded by inflation? If so, they may wish to speak with an Independent Financial Advisor.
- Should funds be invested in their pension? If so, they may wish to engage a pension advisor.
- If you are gifting funds or redirecting to a young beneficiary, should a trust be set up? This will allow funds to be carefully managed for their benefit and control the release of funds through trustees on a case-by-case basis.
It may be intended that funds are to be put towards the purchase of your child’s first home. If so, and if they intend to live with a partner in the property, planning steps may be required in order to protect these funds.
These steps might include loaning funds to your child, rather than gifting these outright or settling property into a trust. Our experienced team would be happy to discuss the advantages and disadvantages of each approach, taking into account your own succession planning considerations.
Regardless, as outlined above, all adults (young and old) should, as a matter of priority, take the following steps:
- Create a will to ensure their wishes regarding the funds they have received are complied with, should something happen to them unexpectedly. A cohabitant of your child would have the right to make a claim on your child’s estate, should they die without a will in place. Making a will gives your child control over the provision, if any, they wish to make for their cohabiting partner.
- Put in place a Power of Attorney, which will nominate their chosen Continuing (i.e. Financial) and Welfare Attorney who would manage property, asset, and welfare matters for them, should they become incapacitated. If no such paperwork is in place, a lengthy and expensive court action to apply for Guardianship will be required.
These considerations may appear daunting at first. Please be assured our experienced private wealth and tax team would be happy to discuss these issues with you and your children to give your family peace of mind that your respective financial positions are protected in the best manner possible.