Succession Planning for our most vulnerable heirs

In the last few months my partner and I have found ourselves working with a number of clients with one or more children with special needs. These parents have all shared one common financial challenge, how to plan for their child's/children's future, when independent living does not seem to be an option for at least one of them.

Before we met these clients, the only solution they could envisage was to leave the vast majority (and in one case, all) of their assets to the child with special needs and hope that was enough to pay the costs. Most were less than confident that it would be adequate and all were feeling "guilty" where their other children were concerned.

The feeling of guilt was not purely financial, although the inability to treat all fairly was difficult to face. It was more a future that included the responsibilities for a special needs sibling that pained the parents, especially when they were unsure as to whether the assets they had to leave behind would be adequate. The legal ability for dis-inherited children to contest a Will also played on their minds, as they recognised that things change and people's circumstances and needs change too.

The perfect solution, according to the parents we engaged with, would be that they could leave their assets to their children equally and still be sure that their special needs child would receive the care and attention they needed. We thought of a way of making that happen. In broad terms, we arranged the following:-

• We investigated the costs of full-time care (different beneficiaries have different needs) for the child in question, covering education, residency, medication, physiotherapy, nutrition...etc. and agreed an annual number with the parents.
• Using state of the art planning software, we illustrated the costs calculated, indexing by 2% per annum, between today and the child's age 100, and showed the actual costs year by year.
• We then calculated the amount of tax-free cash that would be needed to fund these future expenses and applied for Life Insurance on the parents for this amount. The fact that the pay-out would only be needed on the parent's second death made the cover far less expensive than it would have been normally.
• We illustrated how the amount of pay-out needed falls for every year the parents survive and so put cover in place on a decreasing basis, which also lowered the monthly costs.
• The parents then met with their Solicitor and wrote a new Will, which bequeathed all of their assets to their other children. It also creates a Discretionary Trust fund for the special needs heir, into which is paid the Life Insurance amount when the second parent dies. The beneficiary's siblings are to be the Trustees of the Trust when it is established, meaning they will make decisions for their sibling and will have more than adequate resourses to deliver their needs.

This solution, as long as the life insurance premium can be accommodated, ensures that all children are dealt with fairly in the Will, which limits the possibility of legal challenges in the future, and that the most vulnerable heir is not only properly provided for, but also has a formal support structure, with people entrusted with making their decisions being the most appropriate people of all.

Finally, we were also able to help these clients ensure their most vulnerable heirs could stay, if appropriate, in the Family Home, which can be bequeathed to a child with special needs tax-free (free from Inheritance Tax). If this asset was divided equally, the other children would have a tax liability, while if left alone to the most appropriate heir taxes reduce to zero. No matter what your circumstances, if you have built your wealth to a value where your children will pay Inheritance Tax (€310,000 is the tax-free threshold between a parent and child), then planning who gets what can mean substantial tax savings.

It costs nothing to talk and if any reader would like to find out more about this or any other topic I have written on, please send me a message here on LinkedIn and I will be in touch.

Paul A. Overy QFA, FLIA

November 2017