Importance of Trusts
Trusts are becoming more and more important in estate planning. We can help with trusts to protect assets for future generations. This may include putting money into trust to protect a vulnerable or disabled person who may not be able to manage the money themselves.
• Protective Property Trust: Probably the most popular of all the Wills written today. Simple Wills with the addition of a life interest (IIP) trust gifting the deceased’s share and interest in the property to the trustees. The trust is written to allow the survivor the right to live in the property for the rest of their life but with flexibility to sell and purchase another one. On the death of the survivor, the property is distributed in accordance with the trust and not the survivor’s Will. This is especially useful where a couple have children from previous relationships/marriages and wish to provide for their new partner/spouse but ensure their assets ultimately pass to their own children. Will require the property to be owned as tenants-in-common; severance prepared, if required, at no extra cost.
• Disabled/Vulnerable Persons Trust: Wills written to include a discretionary trust that will protect beneficiaries should they have difficulty in managing financial affairs. Commonly through disability, dependency on drink or drugs, gambling addiction, or prodigality. Allows the testator to provide for a person in a safe and controlled fashion. The Trustees are able to advance capital and income as required; a letter of wishes should be prepared to document the testators intentions. For vulnerable persons without disability the trustees are able to manage the fund on behalf of that person therefore removing the risk of frivolous spending or a drink/drug binge that could lead to severe illness or death. Where the testator has a disabled beneficiary the trust complies with S89 IHTA 1984 and therefore benefits from preferential tax treatment.
• Flexible Lifetime Interest Trust: Commonly referred to as the ‘ideal modern Will’. Ensures the testator provides for his or her spouse, by providing them with the income from the entirety of their residuary estate. Has additional flexibility as the Trustees are able to advance capital, either as a gift or a loan, whilst preserving as much of the capital as possible for the deceased’s chosen beneficiaries. Particularly beneficial for high net worth clients as the trust is written to allow mitigation of IHT after first death (not a tax saving tool in itself; additional advice will be required). Often preferable for younger couples who do not wish to undertake aggressive IHT mitigation as it allows for tax planning to be implemented in the event either of them dies. Spousal exemption will apply on first death (provided the clients are married/civil partner’s) resulting in the survivor’s Personal Representatives having the ability to claim a Transferable Nil Rate Band on second death. Requires all jointly owned assets to be held as tenants-in-common (one severance prepared without charge if required).
• Asset Protection Trust: Used most commonly to ‘ring fence’ major assets such as the family home providing peace of mind that the assets are protected for future generations. . Most beneficial where the owner is single, a widow or widower and other protective measures cannot be implemented. As the assets in trust will not pass under the Will of the settlor, probate is not required to administrate these assets, resulting in a shorter period of administration after death.
To get a full appreciation of the need for a trust contact us to discuss your requirements.