Martin Hawes: Secure the kids' future with trust

Have you ever thought how the children would fare if both you and your partner died? It is not terribly likely that people in their 30s or 40s will die; however, if it does happen, it is quite common for both partners to die together: house fire, car accident, plane crash, etc.

Many people in their 30s and 40s don't have a will. Those who have may not have updated it when they married, had children or built wealth.

I frequently see wills which, while allowing for the children's upkeep, give everything to them in equal shares on attaining a certain age - sometimes as early as 20.

Two things are wrong with this: first, they are often too young. They could blow the money if they receive large inheritances and they grow up knowing that they are "trustafarians". They don't have to build careers because a large amount of money is coming along soon.

Second, circumstances may arise where equal shares are not a good idea. One of the children may need more support because of a disability while another should have less because of a drug addiction. Fair does not always have to mean equal.

Flexibility is better than prescription. This means that all assets would go into a trust (probably an existing family trust) and the trustees would have discretion and flexibility over when and in what proportion assets go to the children as they grow up. No definite time for receiving the inheritance is set - trustees use their judgment.

This, of course, has its own problem - as these trustees have complete discretion, they must be trustworthy. The trustees will have to make decisions depending on what may happen while your children are growing up.

This is solved by two things: first, appoint two very good trustees. One should be a professional (lawyer, accountant or trust company) who will make sure that good records are kept and the trust is managed well. The second should be a close friend who could judge what you would have wanted to happen in any given circumstance.

The other thing to do is to write a letter of your wishes. This will not be binding on the trustees - you do not want it be obligatory because trustees need flexibility if things change. However, in normal circumstances, a statement of what you hope to happen to the money is most likely to be followed by the trustees.

Often a lot of money is involved in inheritances - even those which only have a house and some life insurance can have big trust funds. Adopting a discretionary approach has its risks but seems to be better than a model which is not flexible enough to take account of the unexpected.

* Martin Hawes is a financial adviser. His disclosure statement can be found at www.martinhawes.com