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Protective Will Trusts

With an increasing amount of people wanting to protect their wealth, and concerned with the financial impact care home fees have on it; a Protective Will Trust is an invaluable way to ensure as much as possible goes to the people you want to inherit.

We are on hand if you would like to discuss the benefits of adding a Trust to your Will.

An Overview

Will Trusts can be complex but it is important you understand a little bit about them so you can make an informed choice based on your circumstances.

What is A Will Trust

More detailed explaination of what a Will Trust is, Trustees and Beneficiaries

Why Have A Will Trust

Some of the many reasons why having a Will Trust may be right for you

Types of Will Trusts

Find out about the 4 common types of Will Trusts

Property Trusts

Make sure your property is protected by a Trust

What is a Will Trust

A Will Trust means that you leave your cash, property and possessions (your assets) to people you trust (your Trustees), who look after them for the people you choose to inherit (your Beneficiaries). This means that your Beneficiaries can benefit from your estate without actually owning the assets themselves.

Protect Your Estate and Your Loved Ones

Family structures can be complex and stressful, so it’s important to have the type of Will in place that best reflects your circumstances and wishes. Including a Trust within your Will gives you the reassurance, and peace of mind, that you can protect and control what happens to your property and possessions after you die.

We have simple solutions to a wide range of different situations to meet the needs of families who want to protect their own interests, or those of their children or vulnerable family members.

Trustees and Beneficiaries

Trustees

Trustees are the legal owners of the Trust and as such are legally bound to deal with it in accordance with the terms set out in the Will Trust. They also administer or manage the Trust and may make decisions about it. Usually Trustees are the same people as the Executor(s) in a Will and can include your spouse / partner or Beneficiaries. There should always be a minimum of two Trustees.

Beneficiaries

A Beneficiary is anyone who stands to benefit from the Trust. There can be one or more Beneficiaries and each may benefit from the Trust in different ways. For example one Beneficiary may be entitled to Trust income only, whilst another Beneficiary may be entitled to the Trust capital.

Why Have A Will Trust

Trusts can perform a wide range of different functions. The following illustrates some of the most common family situations where Trusts are often used:

  • To look after your spouse/partner after you have died, whilst at the same time making sure your children’s inheritance is protected
  • To allow your spouse/partner to continuing living in a property after you have died
  • To provide for vulnerable family members, for example somebody who is disabled and may not be able to look after their own affairs
  • To protect the inheritance of Beneficiaries who are bankrupt or likely to divorce
  • To protect your property and possessions (as far as possible) from the impact of care home fees
  • To minimise the burden of Inheritance Tax (IHT)

Types of Will Trusts

Protective Property Trust

Can protect the family home from a number of events including remarriage, divorce, bankruptcy or long-term care home fees, whilst also providing a home for your loved ones following your death.

Disabled Discretionary Trust

Putting financial arrangements in place for somebody who is unable to manage their own affairs, without affecting the means-tested state benefits to which they might be entitled.

Discretionary Trust

The Beneficiaries and their entitlements to the Trust fund are not fixed allowing complete flexibility and asset protection. For a few people there may also be tax advantages.

Nil Rate Band Discretionary Trust

Used in certain circumstances to help mitigate the impact of Inheritance Tax.

Protecting My Property With a Trust

Many people are concerned about protecting their property to ensure that it will ultimately pass to their children (or other chosen Beneficiaries) and will not be eroded after their death. A Protective Property Trust can offer protection for the family home from a number of events including remarriage, divorce, bankruptcy or long-term care home fees. It is also a good way of ensuring that your home will eventually pass to your children (or others) whilst at the same time making sure that your surviving spouse/partner has continued security to live there for the remainder of his/her life.

More Information

Why you may want to protect your home

Most couples wish to leave their home to the survivor on the first death, with the intention that it will then pass to their children on the second death. However if after the first death the survivor owns the property outright this could potentially create problems in a number of different ways – all of which could result in the children ending up with nothing at all. For example, where a couple have children from previous relationships it is natural for them to want to protect their own children’s inheritance in case the survivor subsequently changes their own Will for whatever reason.

Furthermore, following the first death the surviving spouse could remarry, divorce, face bankruptcy or need long-term care – all of which could jeopardise the children’s inheritance. The use of the Trust structure can help to solve some of these concerns.

How a Protective Property Trust works

Both Wills provide that on the first death, instead of the family home passing outright to the survivor in the usual way, the deceased’s share of property will pass to Trustees to hold on behalf of the remainder Beneficiaries (e.g. the children) but subject to the proviso that the survivor can continue living there.

In this way the share of the property of the first to die does not become part of the survivor’s estate and so will be protected for the remainder Beneficiaries. Do note that not the whole property can be protected – only the share of the first to die that is held in Trust.

The terms upon which the survivor is allowed to remain at the property and for how long are set out in the Will. There are two approaches: one is to create a ‘life interest’ in the property, whilst the other is to grant a ‘right of occupation’.

Life Interest

With couples, particularly those in long-standing relationships, it is usual to grant a life interest as this does more than just give rights to occupy and it provides flexibility to meet changing circumstances. In legal terms the survivor has what is known as ‘an Interest in Possession’ for the rest of his / her life. This entitles them to live in the property so long as they wish; or if they want to move, then to sell and buy another property in its place (the replacement property being subject to the Trust in the same way); or if they no longer wish to live in the property at all then for it to be sold and to receive the income produced from the investment of the sale proceeds.

In this way the Trust capital (being the deceased’s share in the property itself or its sale proceeds) is preserved for the remainder Beneficiaries who inherit upon the survivor’s death. They do not usually have any right to receive Trust capital – although if required, the Trustees can be given additional powers to pay capital to the survivor at their discretion, for example in case of need.

Rights of Occupation

Where the survivor has rights of occupation only, then this means what it says. The Will specifies when those rights will cease – for example it could be upon the survivor’s remarriage, or a set number of years or simply when the survivor chooses to move away. If required this right can be extended to allow for a replacement property to be purchased if the survivor wished to move elsewhere.

Ancillary Provisions

Whichever approach is used it is usual for the survivor, during their residence at the property, to be liable for the outgoings. If Trustees are to be held liable for any expenses then they will need to be provided in the Will with a separate Trust fund in order to do so.

Placing a property in Trust does not include the furnishings or other household contents, which are usually left to the survivor as an outright gift.

Property Ownership*

A Property Trust is only effective where a couple own their property jointly as Tenants in Common. As such they each own a separate ‘share’ of the property which they are free to leave in their Will in Trust. But where, as is often the case, a couple own their home as joint tenants then before drafting the Will it will be necessary to convert their ownership so that they own as tenants in common. This can be done quite easily through filing a Notice of Severance at the Land Registry.

Trust Inheritance are able to sever a joint tenancy directly with the Land Registry, enabling you to include a Trust in your Will. We are happy to check whether you will need this and confirm if any additional fees will apply.

Care Home Fees

It is illegal to deprive yourself of capital assets in order to deliberately avoid paying care home fees and there is a great deal of anti-avoidance legislation in place aimed at preventing people from removing assets from their estate.

However, it is not illegal to provide in your Will for your share of property to be held in Trust for your children; provided that you are not aware of having to go into care in the near future then there is nothing to prevent you from planning your estate to ensure that your property ultimately passes via a Will Trust in accordance with your wishes.

It is important however to understand that there can be no guarantee that a Property Trust will provide a fool-proof way of avoiding the value of your property being taken into account in means-testing by a local authority. Legislation and regulations are subject to change at any time and it is unclear how far the authorities will go in future to pursue contributions they feel are due to them in respect of care home fees.

Inheritance Tax (IHT)

Equally, it is important to understand that Protective Property Trusts are not designed to save IHT but to serve a practical purpose of protecting property. Using a trust in this way will NOT save tax as the survivor with an interest in possession will be treated for tax purposes as owning the Trust property. So a tax liability could arise on the survivor’s death, payable by the Trustees.

For a couple who are married or in a civil partnership though, there will be no tax liability on the first death when the Property Trust is set up, because of the IHT spouse / civil partner exemption.

Disadvantages

Loss of Control

Placing a property in Trust will inevitably mean loss of control of the assets. So a couple should understand that the surviving partner will have to rely on the Trustees (although, as mentioned above the survivor can be one of those Trustees). For those who wish to retain complete control over their property a Trust will not be appropriate. You should therefore think carefully about this.

Administrative Requirements

Trust law and the taxation of Trusts are complicated. Trustees are required by law to administer Trusts in accordance with strict rules, and they are personally responsible amongst other things for keeping full records and accounts, completing tax returns and paying any tax due and also taking independent financial advice.

These are onerous responsibilities and so specialist advice is usually required not only in setting up the Trust but also for its ongoing administration. Very often Trustees appoint a professional adviser (such as a solicitor or an accountant) which inevitably incurs expense. For this reason Trusts are only worthwhile where the estate is substantial.

Advice

Depending on your circumstances a Trust may not be appropriate. With this in mind, it is important that you seek expert advice. We are on hand to answer any questions you may have about Trusts, whether they are suitable for you and how we can support you and your loved ones in the future.

We’re always here to help

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*There may be additional services required depending on your circumstances. We will go through these with you and make clear any fees payable before you commit to purchasing.

Book A Review

Now you know a little more about Trusts, why not speak to one of our Legacy Planning Advisers about having a full Will Review. They will help you decide if a Trust is suitable for your particular circumstances and go through updating your Will at the same time.

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Have a question? Need some help? We are happy to go through any queries you may have. Call, email, or CHAT with us LIVE online using the link in the bottom right of the screen for an instant response.

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