Risk 1 – Spendthrift
Where a beneficiary is not able to manage their inheritance and there is a risk of it being wasted.
Risk 2 – Special need
A beneficiary has a disability and is not able to manage their inheritance.
Risk 3 – Special need
A beneficiary has a drugs, alcohol, gambling, mental illness or other need stopping them from managing their inheritance.
Risk 4 – Bankruptcy
A beneficiary is a bankrupt or a risk individual who may become a bankrupt after they get their inheritance.
Risk 5 – Betrayal
A surviving spouse/partner betrays the plan put in place by them and their deceased spouse/partner.
Risk 6 – Divorce
A surviving spouse re-partners and that relationship breaks down.
A child’s relationship breaks down.
Risk 7 – Death
A surviving spouse/partner re-partners, the surviving spouse dies, and their new partner makes a claim against their will/estate.
A child dies, and their partner makes a claim against their will/estate.
Protecting against the 7 risks to effective passing of wealth on death
If you want to protect a beneficiary against 1 or more of the 7 risks to the effective passing of wealth on death:
- you will not be able to make an outright gift to that intended beneficiary; and
- you will need to consider placing restrictions on:
- the control (ie who will be the trustee of that wealth); and/or
- use (ie how much of the income and/or capital can they have access to and when), of the wealth intended for that beneficiary.
In order to be effective, those limitations can be quite restrictive depending on the risk you want to protect against.
It then becomes a question of whether your desire to protect wealth against the risk is greater than your concern about restricting your beneficiary in the way they control the wealth or the way in which they can use the income and/or capital arising from it.
IF YOU WANT TO PROTECT AGAINST THE RISKS, you will need to make decisions based on:
- EITHER creating options, flexibility and trusting your intended beneficiaries to get it right once you die which is what you do when you don’t want to protect against the risks;
- OR forcing outcomes, inflexibility and not trusting your intended beneficiaries to get it right once you die which is what you do when you want to protect against the risks.
How to assess the 7 risks?
In assessing the 7 risks to the effective passing of wealth on death, instead of spending a lot of time thinking about things that don’t matter to you, we find the ICADI acronym a useful tool. It goes like this:
- IDENTIFY it – what is the risk?
- CARE – do you care about it? If not, forget about it and move on. If yes, does it concern you enough to want to do something about it?
- ANALYSE – if you do care enough to do something about it, you need to analyse the solutions to deal with it.
- DECISION – after knowing what the solution is / solutions are and what you can do about the risk, are you prepared to restrict your intended beneficiaries as is required to protect against the risk?
- IMPLEMENT – if you are, the solution can be put in place.
So you may want to keep the acronym in mind as you make your decision about what to do about each of the risks.
Do You need assistance with your effective estate planning?
If you need any assistance with your effective estate planning, please get in touch with us so that we can show you how to do it, including the fact find with the minimum of fuss.
Disclaimer
The information in this article is general in nature and is not intended as legal advice. You should not do or fail to do anything in reliance on information in it. We do not accept any responsibility for any loss that you suffer if you do. You should seek professional advice before you do anything about the issues set out in this article.
