A question that is often raised in estate planning is what to do about an inheritance left to children. While the definition of a child in the legal sense refers to the age of majority, being the age of 18 in terms of the Children’s Act, when we talk of children in the estate planning sphere, age of majority is not really a consideration.
The biggest question in this area is: At what age should the children be given access to their inheritance? In itself, this raises another question: Are we trying to rule from the grave?
This debate however cannot be answered in this article as every person’s situation is different and one would have to decide separately in respect of each child due to receive an inheritance. One child may, even before the age of 18, display financial acumen and a parent will have no issue in stating that this child could inherit at a younger age, than another child who does not display an ability to manage money.
When one talks of “ruling from the grave” and making the position of receiving an inheritance very restrictive, we are once again looking at an extremely subjective situation. A clause in a Will which would simply state, “my child may receive his/her inheritance at the age of 25″ may be seen as perfectly acceptable in one scenario, but as extremely restrictive in another. Similarly, clauses which withhold inheritance for the lifetime of a beneficiary and only provide for income to be paid to the beneficiary during their lifetime, may be deemed to be extremely restrictive.
When one discusses Estate Planning and the preparation of a Will, numerous factors would have to be taken into account in deciding “what to do about the children”. Should your estate already be planned on the basis that a Family Trust is currently in place, a simple solution may be to distribute the inheritance into that trust as the trustees are already appointed to administer and distribute the funds within a predefined structure. If however you do not have a trust, it would be worth considering the creating of a Testamentary or Will trust in your Will. Upon death, your assets will be handed to trustees who will then administer them until the age at which your children will inherit.
When you make a decision on an age to inherit you will need to consider: the current age of one’s children, the personalities of those children, whether they are children who will study at an institute of higher education and thus may not need capital before graduation, and any other factors that may influence your decision on when you believe they will be able to adequately manage an inheritance. Obviously, another factor would be the amount of their inheritance that they are due to receive and how these funds are in fact already being administered in respect of your current estate planning.
By way of example, a child who shows academic progress and will in all likelihood attend a university, either in South Africa or abroad, may not require capital until after the studies have been completed and as such withholding funds, by placing them in a Will Trust for the benefit of such a child, makes perfect sense. Another child however, may not intend studying but already has business acumen and would be able to manage funds on their own behalf prior to the age decided on by his/her parent. To withhold the funds until that age may, in fact, be detrimental to any progress that child may make financially.
In conclusion, without being prescriptive, a suggestion that is usually given to our clients is that an age be set as to when the funds will be released from a Will Trust to an heir, can be made fluid by virtue of inserting clauses to the effect that the trustees shall be given discretion to either, pay capital earlier than that date or withhold capital to a specific age before releasing it to the child. This in itself will raise a number of questions, the most important of which is “who will I nominate as a trustee?” The answer to this question is a question in itself: Who do you trust to look after your child and their finances in your absence?
You are welcome to contact Dynasty to discuss this issue, and other aspects of your estate planning, so that we can assist in ensuring that your wishes are carried out in the most practical and beneficial manner.