It’s impossible to predict what decisions our children will make in the future, or what might happen along the way. The impact they will have on our financial planning and dynastic wealth protection, therefore, is a complete unknown.
In other words, the best laid financial plans of mum and dad can often go awry.
Prince Harry and his wife, Meghan – the Duke and Duchess of Sussex – caused shockwaves when they recently announced their plans to step back from public duties and seek to establish financial independence. Senior royals were said to be “disappointed” and “hurt”. The announcement, and the change of direction it heralded, took the broader family by surprise.
Many families make plans to manage and protect the flow and succession of wealth through subsequent generations. This is most frequently seen when one set of parents provides capital to enable the purchase of the first family home. We might see more structured approaches where assets and funds are placed into trusts to benefit future generations.
Subsequent life events and decisions made by those generations, once they become adults, can have a profound impact on those plans. The greatest peril is that of divorce or separation.
Too often, the parents of married couples are taken by surprise that the financial provision they made is now at risk of being lost to their own family and given to the other spouse instead. The family home could be ordered to be transferred to the other partner, for example, if their needs so dictate. Capital put into that home by the one set of parents, either as a deposit or outright purchase, could then be lost to the family from which it came.
Trusts and settlements bring their own problems
It might be possible for a non-beneficiary spouse to argue that the trust has a 'nuptial’ element to it. This means that the trust is shown to have been set up in anticipation or recognition of the marriage. If a spouse can prove a nuptial element, then a judge can rearrange the provisions of that settlement. A judge’s powers in this regard are said to be unfettered.
Specialist legal advice should be taken at the outset when you are thinking about making provisions for future generations. If you are thinking about providing money for your adult children to purchase a home, then get in touch to ensure that any money provided is adequately protected against future separation.
Any trusts that are being contemplated need to be carefully drafted so that they cannot be interpreted as nuptial settlements – if that is the settlors’ intention. In addition, trustees need to be fully informed on how their actions might be interpreted as establishing a nuptial element, even though none might be apparent in the wording of the trust itself.
Finally, parents might want to take a more central role in deciding whether there should be a pre-nuptial agreement if their sons or daughters choose to marry or enter into a civil partnership.
Pre-nuptial agreements are likely to be binding in the event of a future separation if they are properly drawn up and completed:
- in plenty of time ahead of any ceremony;
- with both parties having full knowledge of the other party’s financial circumstances;
- in the absence of any duress or coercion;
- with periodical reviews; and
- with the benefit of independent legal advice.
A pre-nuptial agreement is often the last thing on the minds of a bride and groom. You might need to find a way to begin that conversation in order to ensure that your financial plans for your children are not skewed by possible future changes in circumstances.