This post provides information on the most commonly used Will Trusts today. The Trusts can be drafted to suit individual requirements and two or more Trusts can be incorporated into your final document. If you have any specific questions concerning Trusts, please contact the consultant assisting you.
In all of the Will Trusts listed below you can specify everything that you can specify in normal Wills such as gifts, legacies, bequests, guardians, funeral wishes, and the eventual beneficiaries of your estate. Our fixed fee is £320 inc, for a pair of Will Trusts and includes severing of any joint tenancy if required.
Property Protection Will Trusts (also known as a Lifetime Interest Trust)
With a Property Protection Will Trust the share of the property of the first partner/spouse to pass away would be held in Trust. This Trust would be set up by the Trustees on the death of the first partner/spouse and the surviving partner/spouse would have a ‘life interest‘ in the share placed into Trust. This 'life interest' can include a right for them to reside in the family home for the remainder of their days. The surviving partner/spouse would still hold their own share of the property and they are able to sell or move home if they wish.
Nothing in practical terms changes, the share of the property of the deceased is held in Trust and so the capital value is protected. Then on the death of the surviving partner/spouse the property is passed on to the eventual beneficiaries.
If the surviving partner/spouse requires long term care, the local authority cannot take into account any assets that are held in Trust; they can only take into account income and assets outside of the Trust. The local authority may well disregard the value of the property altogether but in any event you can be certain that at least half of the property is protected.
If the surviving partner/spouse were to remarry, they could only use their half of the property in the new union. The half share of the property which has been placed in Trust would be protected for the eventual beneficiaries, such as children, grandchildren etc. However, as an alternative option the capital held in the Trust could be accessed by the surviving partner/spouse. Any such access would have to be agreed amongst the Trustees, and in these particular circumstances we advise that a Trustee from each side of the family is nominated.
Flexible Life Interest Will Trusts
A Flexible Life Interest Will Trust offers peace of mind if you have significant assets or investments as well as property, and wish to protect their value.
This Trust is created on the death of the first partner/spouse and the capital assets of the deceased are held in a Trust, which pays any income generated to the survivor for their lifetime. Then on the death of the surviving partner/spouse the property is passed on to the eventual beneficiaries. Because the capital in the Trust is not owned by the surviving partner/spouse, it cannot be assessed by the local authority if the survivor needs to end their days in a care home.
The Trusts are very flexible and allow Trustees to change the nature of the Trust if required, for example where a Trust providing more Inheritance Tax savings is appropriate. Funds can also be made available to the surviving partner/spouse or other nominated beneficiaries such as children. However a less flexible version of this Trust can be drafted to remove the flexibility to advance capital to the survivor.
2 Year Discretionary Will Trusts
With the regular changes in tax law and proposed new legislation, these Will Trusts are becoming more commonly used. As the name suggests there is a 2 year period after the death of the person to decide on the most appropriate way to avoid liabilities, and maximize tax or costs savings (such as IHT and care fees). The Trustees would assess the situation at the time and the most beneficial course of action for all concerned would be adopted. They can use any legal means available at that time and these Will Trusts allow for all options to remain open.
The Trusts are straightforward and give peace of mind knowing that the best course of action will be implemented on the death of the first partner/spouse. If there is no immediate IHT or other savings, the Trustees can simply pass the estate directly to the surviving partner/spouse.
Nil Rate Band Discretionary Will Trusts
A variation on the 2 Year Discretionary Will Trust is the Nil Rate Band Discretionary Trust. A common use is if the first partner/spouse to die held an asset likely to increase significantly in value between his/her death and the surviving partner/spouse’s death. If assets with growth potential pass to the surviving partner/spouse, all the growth will be taxed to IHT on the surviving partner/spouse’s death, as the asset is in the surviving partner/spouse’s estate. This would not be the case if the asset was held in this type of Discretionary Will Trust.
Since the government has announced that the NRB for Inheritance tax will be stuck at £325,000 until 2021, the use of these types of Trusts is becoming more common. It is worth noting that the 2 Year Discretionary Will Trust would allow for a Nil Rate Band Discretionary Trust to be set up.
An increasing number of estates can now benefit from the drafting of a Will Trust. The Trust can be drafted to an exact requirement or prepared in a way to provide considerable discretion and flexibility for the Trustees. If a more flexible option is selected, we advise that the client prepare a ‘Letter of Wishes’ at the same time to provide Trustees with additional guidance. Please contact your consultant if you would like more information on this letter