During your lifetime, you will want to retain the greatest amount of control over your estate. You will also wish to ensure that your estate is preserved for the next generation when you die and in order to do this you may wish to think about creating a Trust. The tax considerations of setting up a trust can be significant and it is important to seek professional advice.
A Will Trust is a trust created within a Will and it comes into effect on the death of the testator. Will Trusts are commonly used by married couples and civil partners for some of the following reasons:
They can be used as a vehicle to ring fence assets against potential care home fees in the event that the surviving spouse or civil partner goes into long-term care. If you write a Trust into your Will you can place your half share of your property into trust so that the Local Authority can only assess one half share of your property if the survivor moves into residential care.
Will Trusts can also prevent disinheritance which occurs when the first spouse dies leaving children who may expect to inherit some of the family estate in the future. If the surviving spouse remarries and does not make provision for their children in a new Will, there’s a risk that everything will pass to their new spouse instead.
Discretionary Will Trusts are commonly used by people who are not able to decide, with any certainty, how to distribute their estates, when making a Will. For more information about Discretionary Trusts which can be written into a Will, please see the Discretionary Trust section below.
These are often called Settlements and are established by a standalone document setting out in detail the terms on which the assets being put into trust are held.
Settlements are generally used to pass on assets in a protected way often to the next generation. The person making the Settlement can retain control of the assets by appointing themselves as trustees. In many cases the trust is established as a Pilot Settlement with a nominated cash sum of £10.00. Assets are subsequently transferred to the trustees.
There are two main types of trust which can be used in a Will Trust or Lifetime Settlement (with slight variations for children or disabled beneficiaries).
Life Interest Trusts
A life interest trust can be established either during your lifetime or by your Will (in which they are called immediate post death interests or IPDIs). This type of Trust provides the beneficiary (known as the “life tenant”) with the right to receive the income from the trust, usually for their lifetime. On the death of the life tenant, the trust fund passes to the nominated beneficiaries.
Trusts can hold most types of assets, including cash, investments and property, and in the case of property the right to income is represented by the right to occupy that property.
A discretionary trust is a more flexible arrangement whereby a number of potential beneficiaries are named and the trustees decide who benefits from the trust from time to time usually guided by a separate note setting out the wishes of the person who establishes the trust.
There are trusts that receive special tax treatment when established for bereaved minors by will or for the benefit of people who qualify as disabled.
For comprehensive advice about the use of trusts, please contact a member of our team.