Trusts & Estate Planning

Most people only have a vague idea of what a Trust is, and tend to think that they are only available for rich people but this is simple not the case!

In simple terms a Trust is a legal arrangement whereby a group of people are made responsible for an asset/money for the benefit of another group of people.

By placing assets or money in a Trust you are creating a more secure way of ensuring that your wishes are met after you are gone, providing you with some peace of mind.

Here are 5 benefits of having a Trust

1. Protection from ‘Sideways disinheritance’

This term is most commonly used to describe the situation where children are being accidently or intentionally disinherited by step-parents.

It is becoming increasingly common to have ‘merged’ families and a simple Will ‘leaving everything to my spouse/partner, and then onto the children’ will not provide your children with protection if your spouse/partner remarries – after all the assets/money will pass to your spouse/partner on your death with no restrictions.

2. Protection from Probate costs

Many people do not consider the cost of Probate until we have to deal with it.  Probate is normally required when a person owns property or land, and is sometimes required by certain Banks or Financial Institutes.  The cost of getting Probate is estimated to be approximately 3% of your estate.

If you placed your assets/money in a Lifetime Trust within your lifetime, the assets/money will not form party of your estate after your death (except for Inheritance Tax purposes) and so will not be subject to Probate.

3. Protection from children inheriting at the ‘wrong time’

By having a simple Will ‘leaving everything equally to your children’ will not take into account your children’s circumstances at that time – the likelihood is that they will receive a lump sum which may not be the best thing for them.

You may want to consider the use of a Trust if your child suffers with:

  • Mental illness;
  • Addiction – such as drugs, alcohol or gambling;
  • Physical disabilities; or
  • Existing debts

4. Protection from family challenges
Over the last few years there has been many cases where Wills have been challenged by family members – one of the most published case currently is Ilott v Mitson, where a mother had disinherited her estranged daughter in favour of several charities but her wishes were overruled by the courts.

This has left many people worried that their own wishes could be disregarded even though they have made their Will.  Assets/money placed in a Trust do not form part of your estate on death (except for Inheritance Tax purposes) and therefore, cannot be challenged in the same way as a Will.

5. Providing for future generations

Whilst your initial thoughts might be providing for your children, you may also want to consider providing for your grandchildren, and maybe even your great-grandchildren.

Placing assets/money into a Trust could allow for your children to benefit from your estate through income or loans, without the capital ever forming part of their estate – potentially saving the future generations the headache of large Inheritance Tax bills.

It also has the added benefit of protecting the future generations from losing their inheritance due to their parents divorcing and/or remarrying.

What is a Will Based Trust?

A Will based Trust are those that are written into your Will and will only ever become effective on your death.

The most common Will based Trusts are:

  1. Property Protection Trust – which is used to create a lifetime interest for your surviving spouse/partner, but ensure that the Property is protected for your chosen beneficiaries.
  1. Flexible Life Interest Trust – this is similar to the Property Protection Trust, but deals with your entire estate rather than just your Property. It offers a great deal of flexibility.
  1. Discretionary Trust–  which is used to ‘ring fence’ assets for your chosen beneficiaries.
  1. Disabled/Vulnerable Person Trust – which could be used where you feel your beneficiaries would have difficulty managing their financial affairs.
  1. Business Trust – which can be used to protect business assets and take advantage of Business Property Relief.

What is a Lifetime Trust?

A Lifetime Trust is a Trust that you set up during your lifetime, and becomes effective immediately.

The most common Lifetime Trust is called an ‘Asset Protection Trust’, which are used to ‘ring fence’ assets/money.  This Trust provides you with a life interest in the asset/money, but it will not form part of your estate on death (except for Inheritance Tax purposes).  Therefore, it provides you with the peace of mind that the asset/money is protected for your chosen beneficiaries.

Many clients ask whether setting up an Asset Protection Trust will protect against care home fees.  This is a complicated area and involves consideration of a concept called ‘deliberate deprivation’ – where assets are sold, transferred or used to deliberately avoid care fees.  If assets are transferred into an Asset Protection Trust whilst care fees are not even contemplated, and when the clients are healthy and not considering going into care the assets may be excluded from a local authority assessment for care fees.  A full assessment of the individual’s circumstances will be required.

We are here for you!

Trusts can be a very effective estate planning tool, but a lot of people simply do not understand the benefits and are reluctant to use them.

We will only recommend a Trust to you if we feel that it will benefit you and your individual circumstances.  If you agree and feel that it is the best course of action, we will guide you through the whole process ensuring that you understand and are comfortable you have made the right decision.