Wills & Will Trusts

Why, What and When? However; don’t let the Trust Tail Wag The Will Dog.

There are various types of Will Trusts and careful consideration should be given before drafting a trust into a Will. Two of the most common types of trusts are a Life Interest Trust & Discretionary Trust.

Life Interest Trust

This is a means of gifting assets to one person (The Ultimate Beneficiary) but, allowing someone else (The Trust Beneficiary) to benefit from those assets for a pre-determined period which is; the Life of the trust.

Help reduce Inheritance Tax (IHT)

By passing a gift to a child you potentially inflate their estate which could lead to IHT issues. To help avoid this scenario, you can ‘skip a generation’ by passing the gift to your grandchildren thus avoiding the ‘domino’ effect that could build up. Although there are No IHT benefits for the survivor; A Life Interest Trust allows the survivor to enjoy the benefits of the gift and also help protect against future IHT.

Protecting the interest of the surviving spouse/partner

Gifting ‘your share’ (let’s say 50%) of a property to non-spousal beneficiaries means that those beneficiaries now own half the house and potentially, could force a sale of the property. Similarly; they themselves could be forced to sell their share of the property because of Divorce or even Bankruptcy. A Life Interest Trust means that the beneficiaries can’t ‘get their hands’ on the gift, until 2nd death.

Help protect your children’s inheritance

Nowadays; more and more marriages/partnerships involve children from a previous relationship. Quite often, both parties pool their resources and buy property together. Without careful planning, it is a distinct possibility that when one party dies, their assets may pass to the survivor who in turn may leave their estate to their choice of beneficiaries (eg. children from a previous relationship) when they die. This means that the beneficiaries of the first to die (usually their children) could potentially be ‘done out’ of their inheritance. A Life Interest Trust means that you can protect the inheritance of your chosen beneficiaries.

Help protect against care fees

If you both owned your home as Joint Tenants and one of you died, then the survivor would automatically own 100% of your home. If the survivor was either in long term care or had to go into long term care, the local authorities could seize your home, sell it and use the proceeds (until it is reduced to £23,500 or your death – whichever is the sooner) to pay for your care fees. Gifting your share of a property to a non-spousal beneficiary ie. Children or Grand Children, means that the net effect is the authorities only have half a house which they can claim as an asset to pay for care fees.

Discretionary Trust

This type of trust does what it says on the tin. It is at the discretion of the trustees as to who, when and how much is paid from the trust fund. Providing certain criteria is established & maintained, the trust can last for up to 120 years; potentially providing funds for future generations – exempt of IHT. Its flexibility means that a Discretionary Trust can be used for a variety of uses including; helping prevent certain Business Assets being subject to IHT. Current legislation provides relevant businesses, 100% exemption from IHT, however, gifting business assets directly to let’s say your wife or children, would inflate their estate (should they subsequently sell the business) to the point where IHT may become due. If however; you were to gift your business assets to a Discretionary Trust then; providing certain rules were adhered to, there would be NO IHT to pay and as previously stated; assets of a Discretionary Trust can last for up to 120 years for the benefit of future generations.

Omega Wills can advise you which Trusts are suitable for your specific circumstances.