AIBU to include stepchildren in our family foundation benefits?

[Tonotcauseissues]

I have done a nc for this. We are setting up a family foundation- it will pay for school fees, uni fees, driving lessons, first car, 3 years insurance and a gap year. The children of the family will join the board age 18 and be mentored until 25 where they gain a seat on the company board. We have said it is for biological and adopted children. But after all these blended family threads I don’t want to create issue if our children have step children. So thinking we offer the same the foundation gives(car, driving lessons, uni fees etc) to step children if married or living with our descendants but not the seat on the board- does this seem reasonable so children living in the same house get the same? Just reading the post about the car for nephews etc and got me thinking. And I know this is a privileged position but I want to get it right as once the deeds are written it can’t be changed so don’t want to cause issues in years to come that I haven’t thought through.

I think you need to be careful including step children, firstly because the more you increase the numbers, which as it goes down the generations, the less money there is per person so what you want it for may not be enough.

But also as others have put, step child can be very fluid

Take a friend of mine, (details minorly changed, but not in numbers)
She had
2 dc with her first husband who died.
She married a second husband who had 3 children (her step children) who lived mostly (75%) with mum and were nearly adults. She hardly ever met them. But also had 4 children living with him - he'd taken in his sister's children permanently (don't know the details) all of whom were under 10.

So would you count the adult children there, but not his sister's children? Or would you count both, increasing the number of children to support from 2 to 9?

Or someone else I know whose grandparents changed their will to include the step grandchildren (only met in adulthood) meaning that she got 5% (about £20k) rather than 25%. The step grandchildren were very dismissive of their £20k because they'd recently inherited from their real grandparent in the region of £500k... What was meant to be evens, actually made it less even.

Gosh I have about a million things going round in my head:

1. Wedlock - encourages early marriage/marriage prior to having a baby. May or may not be a bad thing if the family wealth is still protected from divorce?
2. DNA - presumably ultimately you do want all your kids' biological kids to be entitled to the same thing even if they're the result of a one night stand? But maybe not if they decided to become an egg or sperm donor? Not sure how on earth you'd deal with that one. Presumably that's why the wedlock thing is in there.
3. Kids by adoption seems fine to me - cruel to do anything else.
4. Step kids is clearly going to be very difficult. If the aim of the foundation is to protect family funds in case of divorce, will there be enough cash not in the foundation to enable discretionary expenditure if e.g. they are taken on when they're very small?
5. Is this actually the right jurisdiction to be holding the foundation in, if the regulations make it too complicated? Obviously I don't know how big the numbers you are talking about are, but if they're very big, plenty of people choose to set companies up in advantageous jurisdictions, maybe you need to look at the same thing in this instance?
6. How many generations is it expected the trust will run for? If you've got 2 daughters that's fine because you're then talking about 4 people on the board (for now), so then you get older and your daughters have kids. Let's say one child has one kid (Family A) and the other has 4 (Family B). Now you have 9 people on the board (you -2, Family A - 2, Family B -5). Family B can now outvote all of you if they all have equal voting rights. But then we can also imagine a scenario where your two daughters each have 3 kids, so then we have 2, Family A 4, Family B 4 - now the board is 10 people. But you guys eventually will die. And the kids will have kids. So now if A1 has 2 kids, A2 3 kids and A3 one kid, the board would be 4 + 6 plus whatever has happened on the other side of the family, say another 4 + 6. So suddenly the board has 20 people on it, which is getting pretty unwieldy.

We had a family trust and it ended up that people's voting rights were based on their shares of the assets (i.e. initially it was passed down directly to children and they gifted their shares or kept them as they preferred). That stopped the "one part of the family gaining loads of influence" thing but didn't stop the "have to get a million people to agree before you can do anything" thing.

And I guess ultimately if you keep dividing it up according to the number of people there are, after a few generations it's going to be so many people that it may become very difficult to manage. Anyway, worth chucking it into the algorithm - primogeniture isn't very pleasant but it's the only reason the aristocracy stayed as major land owners. It's absolutely not what happened in our family and accordingly a very large sum of money was diluted to comparatively minimal sums, with some people ending up with 1/100th shares or even less.

The other thing to flag up might be house deposits - you haven't included them and that might be on purpose.

And also disability. Which sort of relates to the house deposits. Because the idea might be that you are giving your daughters enough of a head start that they can then save for their own deposits or the deposits for their own kids, but e.g. if one becomes disabled as an adult and their earning capacity is therefore limited that might mean they aren't in a position to do that.

I think a fair bit of this has been said on this thread already but I basically think anything that's set up without any ability to change the rules later or apply some sort of discretion, even in closely defined circumstances, is likely to become a nightmare. If not now then for future generations.

It could make things messy and unfair for your own relatives. As others have pointed out there are issues around how old the step kids are when they marry, differences with kids who live there all the time or see infrequently.

I'd worry that if your relative told this set up to dating partners then it could result in money grabbers and not for real love.

Also it could mean your relative's children have less than the steps. Example relative man marries woman with no family money and has a child. They divorce. This child will only ever have moneh from your side of the family. Same man then marries rich woman who has children with a rich ex. These children already stands to inherite great wealth and now has the same share from your pot too. Further down the line man relative dies and stepmum gets the house on the promise of leaving it to share between all children. But moves on fro this idea and changes will to her children has all

You don't know who your relatives will marry, what those relationships will be like and all the risks that could come with it, so you are best off not making it messy. As an alternative could you set something up like a one off token lump sum to be given to step children 15 years into the marriage or on reaching a certain age

The bottom line Op is there is no way of having clear rules to include all the varying scenarios decades down the track where - if presented with the facts today - you’d want a specific child including, whilst stopping those you wouldn’t want getting benefits/incentivising others to take advantage. Personally I would err on the side on side of protecting the core family.

This sounds more workable but the OP implied the beneficiaries will not be given money they can redistribute, but that those items/fees/costs will be paid for by a trust.

I’m not sure that there’s a huge benefit of being a trustee, rather it’s a necessary management system.

The question is how will step children become eligible and once eligible, can they become ineligible?

I guess there could be an option for a relative who becomes a step parent to have named children added to the “family”.

There would have to be clear eligibility criteria — children under a certain age at the point of marriage or children moving into the family home — rather than living with their parent but part time with children? Longevity of relationship or something?

The issue with situations involving future, theoretical, non-adopted/non-biological children is that there is no reliability on their involvement with the family. The partner who brings them to the family is an entirely unknown and possibly uncommitted factor.

Reasonably, you have to cater for worst case scenarios. Imagine the worst possible partner for one of your children: dishonest, disloyal, manipulative, gaslighting, and then consider how you want to cater for his/her children.

Surely the legal advisors can create clear criteria for eligibility for the trust’s benefits, even if it’s a list with applicability being at the discretion of the trustees excluding the stepparent.

Complex.

I have a friend who ended up married to a woman he would never otherwise have married because she accidentally got pregnant. If they'd not married their son would have had no access to her family's substantial trust fund. The marriage was miserable throughout and did not end well.*

I also have cousins who are cousins through my uncle's second marriage. He's been more of a dad to them than their actual dad; his bio children have a good relationship with their mum. My aunt and uncle have been together since the older children were preteens so over 35 years at this stage and consider all of them their children.

Anyway, I would question the need for DNA testing (unless there's a paternity dispute) and in this day and age, insisting children only qualify if they're born within wedlock seems absurdly antiquated.

Can you not say it's bio/adopted children only but give the trustees the option to make discretionary payments as situations arise?

*ETA this is not a dilemma I or any of my other friends have ever had to face! The rest of us are very ordinary in comparison.

On second thoughts, keep it to blood line. If step children are to be treated as family later, a distribution can be made in favour of the blood relatives and they can gift it on as required

Generally it follows what’s on the birth certificate and who is the legal parent. There would be DNA testing in the case of illegitimate children or where there was uncertainty but usually being the legal parent is enough. Are you suggesting maternity is tested too or just paternity, as you’d need to be clear about that.

What do you intend to do for the children of same sex couples?

We have explicitly excluded house deposits as we believe that should be saved for - the idea is yo ensure they have education and skills ie driving licence to save for themselves.

Yes but I want to ensure the criteria we put in actually reflects what we want without unintended consequences.

It is an interesting question re sane sex couples as one of the jurisdictions doesn’t recognise same sex but that is not our personal opinion so the foundation ensures this can be respected.

Yes the marriage seemed problematic to use when it was suggested especially as we had our children out of wedlock

DNA testing would be to identify previously unknown children, rather than those already known to the family.

If there was a brief relationship, they lost touch, but a child resulted and came forward, that would need confirmation by DNA.

That is how I felt too when i started thinking of the future- right now it is super simple as it is us and our 2 daughters but these foundations run indefinitely until money runs out of course. And your example 2 -if someone turned up and did a DNA test and they were a genetic match I am not sure I would want them included as they wouldn’t necessarily have our family values. So we are back to what makes you part of the family. But again I do t know as this hasn’t happened to us.

But if we go with the advice that child would be excluded.

If one of your dc turned out like my father and you'd included steps you'd be stuffed.

Marriage 1 (to my mother) 2 bio dc
Marriage 2 2 bio dc
Marriage 3 to a woman with 3 dc (3 steps)
Marriage 4 to a woman with 3 dc (another 3 steps)
Marriage 5 to a woman with 1 dc

So a total of 4 dc and 7 steps.

His second wife (my first step mother) was similar, she had even more marriages, I think in total 6 or 7 bio dc and around 8 steps.

Good thing her parents' family trust only included bios, although I would be sitting pretty if they had included steps!

Maternity is much easier to prove ofcourse but the DNA would be to protect from false paternity if say a grandson was married I guess. But I have loads of questions for Tuesday.

That’s complex and not a scenario I had thought through,

Yes they do t get money but school fees can be paid directly to the school etc, flights for gap years can be purchased, books or laptops for uni. It is not unfettered access like a trust fund

I’m guessing all the ‘treat them all the same’ cohort will be silent at your post.

Wonder if they would be saying grand-parents should give each step-child a car if the bio children get cars.

I would want my eldest treated the same, as they have been part of the family since they were 8 months old.
In this scenario, I would say once the marriage has ended, the children are no longer step children and should be excluded.
I don't think there is an easy answer to how to phrase things to fairly include step-children.

I would want that child included and would see this as an opportunity to share the family values. Excluding a DC that fits the criteria apart from their parents’ behaviour seems harsh. You’re also effectively allowing an irresponsible father to deny a future child of the family.

And I guess that was the point of my next paragraph - and the issue with things that you have to set up now for perpetuity. Because e.g. if you'd set that up 30-40 years ago people would have been able to buy a house relatively easily. Now, saving up might actually be quite difficult. In the future it could be even harder or almost impossible. Or it could be much easier, the point being you don't know that now.

Or school fees might go up 3 fold and drain the trust such that people would be better off not having school fees paid and instead paying for some other thing.

Or driving lessons might no longer be relevant because everyone just uses self driving taxis but everyone does now need setting up with their "home support robot" or whatever thing we can't imagine anyone would need now.

As in if you imagine you wrote this trust in 1870, it might have provided for a carriage or their horses but then that would have been useless by the 1970s.

And I think I would want to have a serious think about what my family values were in terms of what I wanted this money to be enabling my children to do. Because is the answer that you want to enable them to go and make loads more money? Or is the answer that you want to free them from having to prioritise earning money when they choose their career? For example I would have really loved to work in theatre. Ultimately I decided I would rather be able to buy a house and to not worry about paying my mortgage, so I don't do that. Another person might have been a great nurse or a great teacher, but instead ends up feeling like they need to train as a lawyer or whatever, so that they can save. Or they might be disabled. Or they might not be disabled but their child might be.

If this is meant to carry on running after you're dead and you can never change it, you need to somehow set it up to deal with a world we can't imagine existing.

Why? Under what terms are you excluding biological children?

Yes and this is my dilemma really as it runs until there is no money but I will be discussing all these issues on Tuesday.