Page last updated at 23:37 GMT, Tuesday, 14 July 2009 00:37 UK

Sorting out your child's inheritance

Money Talk
By Hayden Bailey
Boodle Hatfield solicitors

Paris Jackson, Prince Michael Jackson II and Prince Michael Jackson I stand onstage at the Michael Jackson public memorial service
Deciding who looks after the children is best done before you die

The sudden death of Michael Jackson has given considerable publicity not only to his finances but the arrangements for looking after his children.

The same issues can face anyone, so thinking ahead and planning for the financial security of your loved ones is vital.

The key decision to make is who, if you die, should look after your children and carry out your wishes for their care.

Making a decision as to how you would like your children to be brought up, and who you would want to be responsible for them after you have died, can be tricky.

It is often far harder than making a decision about how your financial assets should be dealt with.

Guardians

Under English law, a parent with "parental responsibility" can appoint legal guardians of their minor - under age 18 - children to cover the situation when that parent dies during the children's early age.

Assuming both parents have parental responsibility, the appointment of any guardian will not usually take effect unless and until both parents die

Where parents are married at the time of their children's birth, parental responsibility is automatic for both mother and father.

If the children were born outside marriage, a father does not automatically obtain parental responsibility, although he can obtain it, unless the child was born after 1 December 2003 and his name is registered on the birth certificate. The date varies in Northern Ireland and Scotland.

Assuming both parents have parental responsibility, the appointment of any guardian will not usually take effect unless and until both parents die.

This can lead to confusion and difficulty if each parent appoints a different guardian, so agreeing the same guardian is advisable. Further complications arise in cases of divorce or separation and where there is a residence order in favour of one parent.

It may feel sensible to appoint two guardians, so that "each side" of the family is represented, but this might lead to practical and emotional difficulties if the two sides disagree as to how the children should be cared for.

Whoever is chosen, it is important to discuss expectations and wishes with the potential guardian, to ensure that they are happy to accept the role. If not, there is a risk that the appointed guardian may simply choose to disclaim their appointment.

Making a will

It is possible to appoint guardians for your children in your will, or by signing and dating a written statement.

Both methods are equally effective, but many parents prefer for the appointment to be made by will, so that financial arrangements for the children and the guardian can be included and the single document can be stored safely.

Hayden Bailey
Hayden Bailey

If a child has no living parent and no guardians have been appointed, then it is usually necessary for an application to be made to the court for a guardian to be appointed.

The court must regard the child's welfare as the paramount consideration.

It is possible to indicate in the appointing document or in a separate letter how you would wish your guardians to care for your children, including, for example, the way in which you would wish them to be housed, educated or encouraged toward a particular religion.

It is important to recognise that the expression of wishes of this kind are not legally binding and ultimately, the appointed guardian will be free to dictate the manner of the children's upbringing.

Consequently, the choice of guardian remains all-important. These issues can be additionally sensitive if, for example, the potential guardian would need to move home to accommodate the children.

Trust fund

Under English law, it is not possible for children to inherit assets until they reach the age of 18.

It can sometimes be sensible to appoint different people to have the responsibility of dealing with the financial and administrative aspects of your estate from the people who have the practical responsibility of caring for your children

Therefore, even if your will attempts to leave assets outright to your children, there will be an automatic "trust" imposed, so that the executors or trustees of your will remain responsible for the assets until the children reach 18. The law in Scotland and Northern Ireland may well vary and local advice should always be taken.

It is, of course, common to create specific trusts within wills, so that children do not inherit until after the age of 18 - even though this can give rise to an extra inheritance tax cost.

Where large sums are involved, ages of 21 or 25 are often chosen, on the basis that the children are more likely to display a greater degree of financial maturity the older they get. Trusts can also assist with asset protection issues - for example, in the context of divorce.

You should consider whether the same individuals appointed as guardians should also be appointed as the executors or trustees of your will.

It can sometimes be sensible to appoint different people to have the responsibility of dealing with the financial and administrative aspects of your estate from the people who have the practical responsibility of caring for your children.

Appointing different people for these roles can also minimise the risk of conflict or misuse of funds by an appointed guardian.

If you do not make a will or fail to keep it regularly updated, then your assets might not pass to your children in the way you had hoped.

If you die without a will, known as dying intestate, the devolution of your estate will be governed by statutory rules, which can often give rise to a different result from the one you might expect.

Specific legal advice should always be taken, as these comments relate to the law as it applies in England and Wales and there are likely to be differences in other jurisdictions.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.



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