Protecting your family’s inheritance is one of the most important parts of estate planning, especially in blended families. Trusts are powerful legal arrangements that prevent sideways disinheritance by ensuring your assets reach your intended beneficiaries rather than being passed outside your family line.
In Scotland, sideways disinheritance is a major cause of inheritance and will disputes, often tearing families apart when children discover they’ve been unintentionally disinherited from their parent’s estate. Proper estate planning is crucial to avoid these situations.
At Jones Whyte, our experienced trust lawyers have helped hundreds of Scottish families protect their assets with comprehensive estate plans. This guide explains sideways disinheritance and how you can protect your children’s inheritance while still providing for your spouse.
Table of Contents
- Understanding sideways disinheritance
- 3 Types of trusts that can help prevent sideways disinheritance
- How to prevent sideways disinheritance in Scotland
- The benefits of using Jones Whyte’s trust lawyers
- Key takeaways
- Frequently asked questions
Understanding Sideways Disinheritance
Sideways disinheritance occurs when someone other than your direct descendants, such as children or grandchildren from a previous marriage, inherits your assets when you die. This is commonly seen when your surviving spouse or partner remarries or enters a new relationship, and the assets you left them ultimately go to their new spouse’s family instead of your own children.
This situation can happen in the following ways:
Surviving spouse remarries
If the surviving spouse inherits the deceased’s estate and later remarries, the new spouse may gain control over those assets. This sideways step leaves the deceased’s children disinherited.
Surviving spouse changes their will
Even if the surviving spouse doesn’t remarry, they may change their will to leave the inherited assets to someone other than the deceased’s children, such as a new partner, stepchildren, or other beneficiaries.
Legal rights
In Scotland, spouses, civil partners, and children have legal rights to a portion of the deceased’s moveable estate. These moveable assets include cash, investments, personal belongings, and furniture but do not include heritable assets like land or buildings.
If the deceased’s estate predominately consists of heritable assets and they leave these to a new spouse, those assets may go to the new spouse’s family. This can result in the deceased person’s children or grandchildren being disinherited.
Intestacy rules
If someone dies without a will, the estate is deemed intestate. This means it is up to the courts to decide who will receive the assets and how much of each asset will be distributed to each person. While legal rights are considered, assets may not be distributed as you would have wished, potentially leaving little to nothing for your children.
However, several trust options can be used to avoid sideways disinheritance, which we will explain in the following section.
3 Types Of Trusts That Can Help Prevent Sideways Disinheritance
Here are three types of trusts you can use to prevent sideways disinheritance in Scotland:
1. Life interest trusts
In Scotland, life interest or interest in possession trusts are commonly used in estate planning. They provide financial security for a surviving spouse and ensure assets pass to future generations (e.g. children from a previous marriage).
Key features of life interest trusts:
- Settlor/granter: The person creating the trust, with specific instructions in their will.
- Trustees: The person/s responsible for managing trust assets, as stated in the settlor’s trust deed.
- Life interest: The right given to the life tenant to benefit from trust assets.
- Life tenant/liferenter: Generally, the settlor’s surviving spouse is given the right to receive the rental income generated from the trust assets or to use the property (home) until they move out or pass away. However, the life tenant will never own the assets outright, as legal ownership remains with the trustees.
- Beneficiaries: When the life tenant dies (or moves into a care facility), the assets pass to the settlor’s named trust beneficiaries, usually their children. This type of trust prevents assets or capital from being redirected to a new partner’s family.
Example: Robert remarries Jane and has two children from his first marriage. In his will, Robert places the marital home into a life interest trust. Upon his death, Jane can continue living in the house, but she doesn’t own the property, regardless of what is in her will or if she remarries. When Jane dies, the home (asset) is given to Robert’s two children.
2. Discretionary trusts
Discretionary trusts are a flexible estate planning option. They allow trustees to manage and distribute the settlor’s assets according to the changing needs of the beneficiaries. Discretionary trusts protect your assets and ensure your estate is managed and distributed according to your wishes.
Key features of discretionary trusts:
- Versatility: Unlike other trusts where beneficiaries have fixed entitlements, discretionary trusts allow trustees to decide how, when, and to whom assets are distributed. The deed will specify the potential beneficiaries, but it is up to the trustee to determine when and how much of the estate is distributed.
- Beneficiaries: Beneficiaries do not have an automatic right to trust assets or capital. Instead, trustees determine asset distributions based on the beneficiaries’ needs and the settlor’s wishes. A “letter of wishes” often accompanies the trust deed whereby the settlor names a class of beneficiaries that trustees should consider.
- Trustee’s responsibilities: Trustees must always act in the best interest of the beneficiaries. They are responsible for managing trust assets, making investment decisions, keeping records, and ensuring income tax is paid (45%).
Example: Margaret has a valuable investment portfolio and children from two marriages. She places her investments (assets) into a discretionary trust and names all her children in her letter of wishes. When Margaret dies, the trustees can distribute her assets to these family members according to their needs, regardless of Margaret’s marriage status when she passes.
3. Family protection trusts
A family protection, or asset protection trust, is a type of discretionary trust that manages a settlor’s assets for the benefit of other family members. These assets are protected from certain risks such as inheritance tax (IHT) liabilities, divorce, or the surviving spouse remarrying. This type of trust specifically focuses on preserving wealth within a family unit across generations and is managed by a trustee/s.
Key features of family protection trusts:
- Asset protection: Family protection trusts shield assets from risks like creditors, lawsuits, divorce, and sideways disinheritance. By placing assets in these trusts, you keep them separate from your personal estate, guaranteeing they pass to your chosen beneficiaries.
- Tax benefits: Assets within the trusts can be managed and structured to minimise tax liabilities for future generations in a tax-efficient way.
- Avoids confirmation: By placing assets in a trust, they are not part of the confirmation estate, which simplifies asset distributions and reduces administering costs.
Example: Andrew owns a successful family business that he wants to pass on to his son from his first marriage. He creates a family asset trust that allows his current spouse to receive income from the business during her lifetime but ensures the business ownership transfers to his son.
How To Prevent Sideways Disinheritance In Scotland
Here are some strategies that can help when drafting your will:
- Consider life interest trusts: These trusts can allow your surviving spouse to benefit from your assets (e.g. house) during their lifetime, without granting them full ownership. Upon their death, the assets can then pass to your chosen beneficiaries, such as your children. However, the specific terms of the trust are vital, and legal advice is essential to ensure it aligns with your intentions.
- Explore discretionary trusts: These trusts provide trustees with flexibility in distributing assets, which can be helpful in balancing the needs of a surviving spouse and children from previous relationships. However, it’s important to carefully consider the potential for disputes and to select trustworthy trustees.
- Mutual wills: A mutual will means a spouse cannot change the will upon the other’s death, ensuring asset distribution remains untouched. However, they are complex and have limitations in Scotland.
- Specify gifts: Directly allocating specific assets or funds to your children from previous marriages can provide a degree of certainty. However, this should be done in conjunction with a comprehensive estate plan that considers the overall needs of all beneficiaries.
Setting up trusts in Scotland requires specialised knowledge. With unparalleled expertise in all aspects of trust law and taxation, Jones Whyte provides practical, tax-efficient advice on creating, administering, modifying, and concluding your trust.
The Benefits Of Using Jones Whyte’s Trust Lawyers
Using Jones Whyte’s legal services is a smart move––here’s why:
- Expert guidance: Our dedicated trust lawyers have decades of combined experience and work closely with you through the process of setting up and managing trusts that suit your unique needs and objectives.
- Tailored solution: We understand that no two estates are the same. We take a personalised approach and provide straightforward advice to ensure your trusts and trustees are set up exactly how you intend them to be.
- Proven reputation: Backed by a 4.8/5 Trustpilot rating, our law firm is recognised as one of Scotland’s best.
- Compliance experts: Our accredited specialists are authorised by the Law Society of Scotland, ensuring all legal services are compliant for your peace of mind.
Key Takeaways
- Sideways disinheritance occurs when assets intended for a person’s children or grandchildren are inherited by a new spouse’s family due to remarriage, will changes, or intestacy laws.
- Life interest trusts, discretionary trusts, and family protection trusts can prevent sideways disinheritance.
- Another way to avoid sideways disinheritance is to create a mutual will with your spouse. This means they cannot change their will upon your death, ensuring that assets are given to your direct bloodline.
- Jones Whyte’s Scotland-accredited specialists provide expert legal guidance, tailored estate planning solutions, and full compliance with Scottish trust laws to ensure your assets are distributed according to your wishes.
Jones Whyte Is Here To Help
Trusts are powerful legal arrangements that prevent sideways disinheritance by ensuring your assets reach your intended beneficiaries.
Whether you’re interested in life interest, discretionary or family asset trusts, Jones Whyte’s trust lawyers are here to help. We’ll ensure your trust plan is compliant, reflects your wishes and safeguards your assets to prevent sideways disinheritance. Contact us today.
Please note: This article is for general information purposes only and does not constitute legal advice. It should not be relied upon as a substitute for professional legal advice tailored to your specific circumstances. If you need advice on a legal matter, get in touch with our team.
