Can I give my children their inheritance early?
My wife and I have been married for 32 years and we have no children. I was married to my first wife (still alive) for 17 years and we had three children. I am in regular contact with my son and we get on well, but I have no contact with my two daughters. This situation has gone on since the break-up.
My wish is to give each of the three children £100,000 now in return for an undertaking that they will not apply for more money from my estate when I die. I do not wish to give my current wife any trouble or anxiety with any court case that could be brought for more payments to be made on my death. At the moment, my current wife inherits everything. Our joint current estate is worth about £3m, including our house.
I gather that a recent case gave the successful right to another party in similar circumstances. I have been advised that it would be dangerous for me to make the cash payments I had in mind as there could be claims made on my estate for further payments.
It is likely that any agreement signed by your children not to bring a claim against your estate would be ineffective, says Robin Lecoutre, an associate at law firm Hunters. Your children cannot be denied the right to apply to court for financial provision, although if they had signed such an agreement it would probably weaken their claim. In any event, the agreement would not have the effect you want, which is to stop them applying to the court in the first place.
A more effective approach would be to leave each of your children £100,000 when you die and to include a “forfeiture clause” in your will. This means that your children would receive their legacy on condition that they do not make a claim against your estate. While it would not bar them from making a claim, it would give them a strong financial incentive not to do so; if any of them were to make a claim, and then lose, they would forfeit their £100,000 legacy and would also have to pay legal costs.
From a personal perspective, making gifts to your children now may help you to re-establish your relationship with your daughters. However from a legal perspective, the fact that there has been a long estrangement from your daughters is a significant factor which would weaken any claim they might make against your estate after you die. Another risk in making the gifts now is that your children may use some of the money to pursue a legal claim for further financial provision out of your estate when you die.
You should be aware of the tax implications of whatever course of action you choose to take. If you need to sell investments to raise the £300,000 cash to give away to your children now, you might be charged capital gains tax (CGT) on those sales. You could avoid that CGT if you gave the £300,000 to your children in your will.
If you left £300,000 to your children in your will, and the rest of your estate to your wife, the gifts to your children would be within your £325,000 inheritance tax-free threshold. So, assuming you have not used your inheritance tax threshold within the last seven years (for example, by making gifts to anyone other than your wife), the legacies to your children would be free of inheritance tax on your death.
On the basis that you would like to minimise the risk of your children claiming against your estate after you die, from a legal standpoint it would be better to leave the £300,000 gifts to your children in your will, coupled with a forfeiture clause, rather than to make the gifts during your lifetime. You do not mention whether you are still paying maintenance to your first wife; if you are, and this liability is not capitalised during your lifetime, she will also have a claim against your estate and so you should anticipate that and make provision for her in your will.
Read the full article in the Financial Times, behind a paywall, here.