Cash Clinic: Providing fairly for second family: a job for trusts

A It is important that you have a valid will in place so that your wife and your children from both marriages are provided for. If you already have a will in place it should be reviewed to make sure that it still reflects your wishes. I would recommend that your will is reviewed every three years or whenever you have a change in circumstances, for example, have another baby.

The trust to which your friend referred could either be contained in the body of your will or be set up during your lifetime. Certain trusts do not now attract the favourable tax status they once did, but trusts can still be used for many reasons - such as for asset protection purposes - and to provide for your spouse as well as children from different marriages.

After your death, you may wish for all your assets to pass to your wife but specify that they are to pass to your children on your wife's death. This can be achieved by the use of a Liferent Trust in your will. This type of trust would give your wife the benefit of some or all of your assets and the income produced by those assets during her lifetime or for a specified time. On her death, remarriage or if she chose to give up her entitlement, your will can then specify whom you want the trust funds to be made over to. For example, they could pass to your children from both marriages.

Similarly, if you own your house or have a half-share in it, you may wish for your wife to be able to keep living in the house until she dies. A Liferent Trust would allow your share of the house to transfer to your children on your wife's death.

Depending on the ages of your children, you may also wish to set up a trust for them in order to protect the assets until they reach a certain age. There are different types of trust that can be set up for your children and the appropriate type will depend on the reasons for setting it up, the type of assets held in trust and the age at which you want the beneficiaries to benefit.

The trustees of a trust for children can be given discretionary powers to decide which beneficiary to benefit, when to benefit them and how much to give them. Often a tax bill is acceptable in order to protect assets in the longer term. However, the inheritance tax, capital gains tax and income tax implications of setting up any trust must be considered carefully and specialist advice from a solicitor should be sought.

The type of trust suited to you depends on many factors including the ages of the potential beneficiaries and your personal tax position. A solicitor can help you determine which is best for your personal circumstances.

• Laura Flockhart is an associate at HBJ Gateley Wareing