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Will you fall victim to the Inheritance Lottery?
Most of us would rest happy if we knew that after we passed away our life’s wealth would eventually pass to our children. We would hate to think of them struggling through life without us there to help. We would like to think that we have helped to make their life more secure, especially as the current climate is so tough. With this in mind, it might be quite a shock to learn that your children could quite easily fall victim to the Inheritance Lottery and not inherit any of your hard earned wealth.
The main problem arises when there is a remarriage. This could be either your spouse remarrying after your death (a situation out of your control) - or it could be that in your lifetime you remarry (as a widow(er) or divorcé(e)).
Let us take a situation
You have been happily married for 27 years. You have a son. You and your spouse are proud of yourselves for working hard to pay off the mortgage of your £230,000 house. Sadly, you then die unexpectedly. Your entire estate goes to your spouse. Two years later your spouse meets someone new and remarries. The new spouse has a son from a previous relationship. The new spouse didn’t bring any capital to the relationship.
Do you know who will inherit your entire estate when your spouse and their new spouse dies? To predict the answer you may as well flip a coin. It depends upon who dies first. If it is your spouse who is first to die, the whole estate will pass to the new spouse and when the new spouse dies it will pass down the bloodline to that spouse’s son. Your son will get nothing. If it is your spouse who is the second to die, it will be your son who inherits.
There is also a possibility that when your spouse remarries – the marriage may end in divorce. If this is the case the new spouse could possibly be entitled to 50% or more of your estate. This makes the odds even smaller that your child will inherit what you built up in your life time.
Where does the problem arise?
The problem arises when you allow your spouse to inherit your share of your property upon your death. Your spouse will own 100% of the property. If your spouse remarries they could lose 50% or more in a divorce. They could lose 100% of it if they remarry and die before their new spouse. They could also lose 100% if they were to go into a care home and a charge is put on the property. Leaving your estate to your spouse is a huge risk to your children’s inheritance. Remarriage could have disastrous financial consequences for your children unless preventative steps are taken beforehand.
What is the solution?
If you would like to ensure that your children inherit your wealth after you and your spouse have died there is a simple inexpensive solution. Instead of giving your spouse your share of your property absolutely, you give them a life interest in your share of the property. This means that when you die your share of your property will be ring-fenced and protected for your children until your spouse has died. Your spouse will be able to live in your share of the property as normal. The life interest can be flexible and allow your spouse to move property and own the new property under the same terms as the trust property. Even if your spouse remarries, divorces or lives in a care home - your share of your property will still be safe for your children. If you would like more information, please contact us.
