WHAT IS A TRUST?
A trust is a legal arrangement where one or more people (called trustees) control money or assets (called trust property) which they must use for the benefit of one or more people (called the beneficiaries).
In short, you are placing the asset in the care of multiple people to ensure the beneficiaries are looked after in a manner that suits you. By leaving assets in trust, you can protect those assets (property, finances etc) from future issues such as re-marriage, family disputes and disinheritance.
Trusts are designed to help your beneficiaries manage their inheritance in a manner that could save them lots of money.
Below are some of the most commonly used trusts that may differ in names, but essentially achieve similar wishes.
Trustees
Your trustees will be the guardians of the funds/assets you place in trust. They have the discretion to make decisions on how, what and when your beneficiaries inherit from the trust. Anyone can be a trustee; however, you should note one thing. The clue is in the name. TRUSTees should always be people you TRUST to act as you wish, but also in the best interest of the beneficiaries. For that reason, family & friends tend to be my preferred choice, although there is sense in nominating a professional trustee, however, be clear with the fee’s they charge to do this.
In short, Trusts are not there to be restrictive to the beneficiaries, they are there to ensure that the beneficiaries benefit from their inheritance in the best way possible.
Life Interest Trust
A Life Interest Trust (LIT) primarily focuses on assets that are properties. The trust enables you to leave your beneficial share of the property within trust. It allows an individual (usually your spouse or partner) the ability to benefit from the property for the remainder of their life or a designated period (this is not to be mistaken for a simple ‘right to reside’ clause which can be very vague and cause huge issues for all involved). A LIT stipulates a duration of the trust, it stipulates who the liferent is, but more importantly, what the liferent can do. You can choose to allow the liferent the flexibility of moving, using any income created from the property, co habit etc; you set the ‘rules’ of the trust.
How does this benefit you?
- Marriage:
If you died and left your beneficial share of your property to your spouse/partner. They have complete control of where they leave that property in their Will. As years go on, your now single spouse meets someone and gets re married; marriage invalidates any previous Will. If they then die, the property will pass over to the new spouse! In one harmless step, your property does not end up with who you wanted (children, siblings, charities etc), instead it’s passed to a stranger you’ve never met. - Fallout/Dispute:
If you died and left your beneficial share of your property to your spouse/partner. They have a fallout with your family or even your children. Although you may have wanted the property to go to your children (as an example) equally. Due to the fallout, your partner decides to remove one or all the children from their Will. Suddenly, due to an argument that you had nothing to do with (you died remember), your property is not being left to the people you wished. - Care:
If you died and left your beneficial share of your property to your spouse/partner. They never remarry, never have a fallout with the kids, but simply end up needing care in later life. To fund the care, your spouse will be means tested and dependent on the value of their estate (property included), will determine whether they receive any funding etc. You died NEVER needing care, however because you have left everything to your spouse, your share of the estate could be swallowed up very quickly. This is not about depriving anyone of funds or access to funds whilst they are alive, it’s simply allowing more freedom to those you leave behind.
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Discretionary Trusts
A Discretionary Trust is almost the most ‘generic’ of trusts, you can set out guidelines within a letter of wishes for the reason for setting up the trust. It is the framework of the majority of trust we deal with. You nominate who you wish to be your Trustees, these people are then responsible for whatever is placed in that trust, and they act under your instructions set out. The fact this is a discretionary trust means that the trustees have the ‘discretion’ to do what they feel is the most appropriate/beneficial for the beneficiaries of the trust.
How can this benefit you?
- 2nd Generation Inheritance Tax (IHT):
Although there is little we can do within your Will to solve any IHT issues you may have, we can prevent the same issue falling to your beneficiaries. If you leave your estate to someone and this pushes their estate over the IHT allowances, your beneficiaries could find themselves paying unnecessary IHT fees on their death. If instead you leave everything to them in a Discretionary Trust, you are leaving it to them in a manner that allows them to benefit from the inheritance, however with the correct advice and planning, they can use the trust to assist their IHT Liability. - Control after death:
If you are concerned that your beneficiaries may not act as you wish with your inheritance, you could choose to utilise a Discretionary Trust to nominate certain trustees to manage the funds. You can then leave instructions to provide the trustees with guidance and information on why you set up the trust within your Will. - Concern for Beneficiary:
Discretionary Trusts have also been used to manage estates for people that may cause damage to themselves if they had full control over large quantities of money. Some clients approach me to remove family members from their Will who have trouble with alcohol or drugs. It can be heart breaking to remove anyone from your Will, instead, a trust can be added to the Will to enable others (trustees) to manage the funds and if needs be ‘drip feed’ the finds to the beneficiary. They can even choose to hold the inheritance until they feel the beneficiary is safe to inherit.
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Vulnerable Persons Trust (VPT)
A Vulnerable Person Trust (VPT) is designed specifically to protect any vulnerable beneficiaries within a Will. The vulnerability can be anything from disabilities to addictions. I see many clients that are worried to leave their estate to children, family or friends due to the fact that the person may not be able to properly manage their funds. This is when the VPT is perfect, it enables you to leave your estate to the people you wish, knowing that the funds will be looked after by people you trust and nominate yourself.
How can this benefit you?
- Support:
Some support for conditions are only given ‘free’ if the individual has been means tested and is worth less than a specified amount. If you leave your estate or a portion of your estate to someone that has previously been benefiting from ‘free’ support, you could risk them losing this benefit as they are now worth more. If the a VPT has been added within the Will, the trustees can manage the funds/assets in a manner that supports the beneficiary to the maximum. - Inability to manage own funds:
If a beneficiary of your Will is unable to manage their own funds yet you still would like them to benefit from your estate, you can utilise a VPT to ensure that your trustees mange the funds for the beneficiary. This enables the beneficiary to still benefit from your Will, under the supervision and security of your trustees.
FREE CONSULTATION
If you would like more information regarding how a trust may benefit being added to your Will,
please call: 01603 981971
or email: ocann@orcawillwriters.co.uk.
It’s completely free to ask me questions, so please do get in touch and start the conversation.