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Intestacy

If you die without making a Will your estate will not necessarily pass on to whom you want.

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Will Writing

Wills are not just for passing on your estate. They can be used for Inheritance Tax planning, appointing Guardians for children, passing on businesses, protecting assets from care costs etc.

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Long Term Care

Steps can be taken to protect assets from being sold to pay for long term care fees.

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Lasting Power of Attorney

If you have mental incapacity no one (including spouses and close family) has automatic rights to take over your affairs.

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Business Succession

If you are a owner of a business will it continue after your death?

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Inheritance Tax

How do you reduce the impact of inheritance tax?

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Document Storage

Do you and your family know where your Wills are kept?

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Probate &
Estate Administration

Do you need help in administering an estate?

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Wills

If you don’t want your estate to pass according to the flowcharts in the Intestacy section you must make a Will. But this is not the only reason for making a Will.

In many situations it is necessary or desirable to include a trust in a Will. But what is a Trust?

 

Trusts – What is a Trust?

A trust is a legal entity. They are usually set up when someone (the “Settlor”) sets aside some money or property (the “Trust Assets”) for the benefit of someone else (the “Beneficiaries”) but the control of the Trust Assets is given to a third party (the “Trustees”).

Once the Trusts Assets have been set aside they no longer belong to the Settlor nor do they belong to the Trustees or the Beneficiaries. The Trustees may look after the Trust Assets as if they were their own but they must always have the best interests of the Beneficiaries in mind. A Beneficiary may be a Trustee (as may a Settlor).

will

The terms of a trust may be specific and give the Trustees only restricted powers or they may give the Trustees power to decide who from the list of Beneficiaries gets what Trust Asset and when (these latter types of Trusts are called “Discretionary Trusts”). The Beneficiaries may be one person or many people and some Beneficiaries may be given precedence over others. The Settlor sets the terms when the Trust is set up

The use of Trusts in Wills is an important part of Estate planning. The Testator (the person making the Will) is in effect the Settlor but the Trust Assets are only set aside on their death.

The main types of trusts which can be created by a Will are:

Bereaved Minor’s Trust
18 – 25 Trust
Disabled Discretionary Trust
General Discretionary Trust
Life Interest Trust
Two Year Discretionary Trust
Business Trust

In each type of Trust the Trustees are decided by the Testator and are appointed in the Will.

 

Bereaved Minor’s Trust

These Trusts are set up on the death of a parent. The Beneficiaries are the bereaved children under the age of 18 and they must receive all the income that has built up in the Trust since the Trust Assets were transferred into the Trust (on the parent’s death) plus the all the Trust Assets on their 18th birthday. There is no Inheritance Tax to pay on any assets going into the Bereaved Minor's Trust (unless the value is in excess of the NRB at the time) or coming out of it.

The Trustees may be given the power to make payments (at their discretion) to the Beneficiaries before their 18th birthday for maintenance, welfare etc.

 

18 – 25 Trust

These Trusts are similar to Bereaved Minor’s Trusts but in this case distribution of the income and/or Trust Assets capital is deferred until after age 18 (up to a latest age of 25). Obviously when the Trust is established the bereaved children must be under the age at which they become entitled to their inheritance. There may be Inheritance Tax to pay on any assets coming out of the 18 – 25 Trust (up to a maximum of 4.2% of the value of the Trust Assets in excess of the NRB at the time).

Again, the Trustees may be given the power to make payments (at their discretion) to the Beneficiaries before the age at which they become entitled to their inheritance for maintenance, welfare etc.

 

Disabled Discretionary Trust

Rather than give an inheritance directly to a disabled person it might be better to give it to them via a Trust. To be effective a Disabled Discretionary Trust should have the disabled person as the Primary Beneficiary and other Secondary Beneficiaries should be named.

Someone else (the Trustees) will look after the Trust Assets on the Beneficiaries’ behalf and, although the disabled person is named as the Primary Beneficiary, because the Trust is discretionary, he/she will not have a right to the income from, or the Trust Assets. This means that the Trust Assets cannot be taken into account for means-tested State benefits.

image of bereaved minor's trust

On the death of the Primary Beneficiary the Trustees are usually instructed to give the Trust Assets to the Secondary Beneficiaries and, indeed, may be allowed to so before the death of the Primary Beneficiary if they decide that he/she has no further use for them (or some of them).

There are Inheritance Tax advantages similar to the Bereaved Minor’s Trusts if the disabled person is entitled to certain State benefits and at least 50% of any Trust Assets distributed while the Primary Beneficiary is alive must go to the Primary Beneficiary.

 

General Discretionary Will Trust

Here the Beneficiaries can be a wide range of people but the Testator wants the Trustees to decide who should benefit and when. There may be certain criteria with which a potential Beneficiary must comply before the Trustees can award him/her any benefit (e.g. coming off drugs).

There are no Inheritance Tax advantages to General Discretionary Will Trusts and a General Discretionary Trust set up on death is treated like any other bequest and may be subject to Inheritance Tax at 40%.

It is usual with General Discretionary Will Trusts for the Testator to write a Memorandum of Wishes to his Trustees outlining how they would like them to act. The Memorandum of wishes is not legally binding but serves as a guide as to how they should act.

General Discretionary Will Trusts and Memoranda of Wishes are used in Sharia Law compliant Wills.

 

Life Interest Trust Wills

A Testator may want someone or a class of people to benefit from some or all of the Trust Assets whilst they are alive (the “Life Tenant”) but not to eventually be able to pass on these assets in their Will – typically on a second marriage the Testator may want their 2nd spouse to have the benefits of their investments but for these investments to eventually pass to the children from their first marriage (and that the 2nd spouse cannot pass them on to any children from any previous relationship).

Variations to these types of Trusts are to limit the period during which the Life Tenant can benefit from the Trust Assets or to allow the Trustees to give some of the Trust Assets to other Beneficiaries, and, in doing so, potentially reduce the income to the Life Tenant (these later Trusts are called “Defeasible or Revocable Life Interests”).

Defeasible Life Interest Trust Wills are sometimes used in Sharia Law compliant Wills to reduce IHT.

Defeasible Life Interest Trust Wills are useful in planning for long-term care.

 

Two Year Discretionary Trust (“TYDT”)

It may be that when someone makes their Will they are not sure what their circumstances will be when they die and do not know whether long-term care or Inheritance Tax will be their priority (or even if a chosen Beneficiary will be disabled). The TYDT covers this situation. One of the Trustees will be the spouse or partner of the Testator. The terms of the Trust give the Trustees 2 years to decide who, from the listed Beneficiaries, should benefit from the deceased’s Estate. This can include setting up further trusts. Any Trust Assets not appointed within 2 years of the Testator’s death are given to the spouse or partner.

 

Business Trust

See Business Succession Planning

 

Appointing a Guardian in a Will

If a child under 18 is orphaned, he or she needs to have a legal Guardian. If the child is under age 16 he or she must live with the Guardian(s). If the child is over 16 the Guardian(s) is (are) responsible for the child (for example, if he or she has dealings with the police, the police will have to contact the Guardian(s)).

If one parent dies and the other parent survives and has “parental responsibility”* the surviving parent usually maintains that responsibility and becomes the legal Guardian (regardless of who may be appointed Guardian in the deceased parent’s Will), unless the Courts decide otherwise.

Children's Trustees image

So if both parents die (not necessarily at the same time) any orphaned children under the age of 18 will need to have at least one Guardian. If the parents have not made any provision in their Wills for Guardians to be appointed, Social Services and the Courts will decide who the Guardian will be. It must be said that even if thought has been given to appointing a guardian in a will Social Services may still get involved but at least there will be clear guidance as to the wishes of the parents. For example, both sets of grandparents may want to be Guardians but the Wills only appoint one set.

Be careful in appointing partners (married or not) as Guardians. If one dies or is incapable of being a Guardian are you happy for the other to be the sole Guardian?

The role of Guardians is to look after the welfare of the children. This covers such things as where the children live, their general maintenance, medical decisions, decisions about religion and education. Guardians do not necessarily look after the children’s assets. This is the role of Trustees.

* parental responsibility is a legal definition. All birth mothers (unless the child was given up for adoption) have parental responsibility but not necessarily all birth fathers.

Children’s Trustees

In the same way that Guardians need to be appointed to look after the children’s welfare, so Trustees need to be appointed to look after their assets. At least 2 Trustees should be appointed and they can be the same people as your Executors or the children’s Guardians (although it is recommended that the Trustees and Guardians should not be exactly the same people – but some overlap is ok). If no children’s Trustees are appointed then this role falls to your Executors.

If nothing is mentioned in your Will, the default is that children will inherit when they reach age 18 (the “vesting age”) and the children’s Trustees will look after their assets until that time. However, you can choose any age (usually between 18 and 25) as the age at which your children’s inheritance vests with them. This means that even for children over 18 you can stipulate an older age when their inheritance vests. In the time between your death and the children’s vesting age, the children’s Trustees can use the children’s assets for the maintenance, welfare, education etc. of the children and they can advance such sums of money to them as they deem appropriate. When the children reach their vesting age, any assets remaining are theirs as of right.

 

Inheritance Tax

Wills can be used to reduce the impact of Inheritance Tax. See IHT Saving Wills for Married Couples (or Civil Partners) or IHT Saving Wills for Unmarried Couples.

 

Long term Care

Wills can be used to protect assets from being used to pay for long-term care. See Property Protection Trust Wills (“PPT Wills”).

 

Vulnerable/Disabled Beneficiaries

If a potential beneficiary of your Will is vulnerable or disabled and may not be able to look after any inheritance that receive, or if an inheritance might affect their State benefits then you should make use of a Disabled Discretionary Trust or a General Discretionary Trust, as appropriate.

 

The Moneta Partnership

It is essential to have good independent professional advice before embarking on any course of action, which is where I come in.

Please contact me if you need assistance in any of the areas above.