Lifetime Trusts
Protecting your home
For the vast majority of people, their home is the most valuable asset they own, not just in financial terms but also in respect of the security it has provided for them and their family over the years. Although we can do everything in our power to keep it safe and in good order, there are some very significant risks about which everyone needs to be aware – namely, whether we will be able to pass it on to our loved ones when the time comes. Using a Lifetime Trust can mitigate some of these risks and help to ease concerns for our loved ones in the future.
Protecting your spouse
Many people worry about what will happen to their partner if they die first. For example, will they be able to stay in their own home? It is possible to give each partner a legal ‘Right to Remain’ in their own home for specific periods of time or up until specific events (eg remarrying or sale of the property).
Avoiding sideways disinheritance
One of the main advantages of using a trust is that it avoids the risk of your beneficiaries being disinherited, either purposefully or unintentionally. For example, if one partner dies, their assets are usually passed to the surviving partner. Should that partner subsequently remarry and then die themselves, their second spouse would inherit everything, meaning that the original couple’s children could lose their inheritance. Even if a previous Will had stipulated that assets from the first marriage should be passed to the children, there is no provision in law for this to take place since the rule of survivorship takes precedence. A surviving spouse is legally entitled to change their Will which means that they can pass all their assets onto whomever they choose. Careful estate planning means you can ensure that your legacy is passed to YOUR chosen beneficiaries.
Protecting your estate
In some cases, people want to protect not just their home but their estate. Asset Allocation Trusts are tailored to meet different needs. Unlike Will Trusts, Asset Allocation Trusts offer protection for both parties, since they remain active after the first death.
Will I be able to pass my home onto my children?
If a property is owned by a couple as ‘joint tenants’, they both have equal rights over the whole property. This means that claims can be made against the whole property by a third party (for example in cases of bankruptcy or care home fees). However, owning the property as ‘tenants in common’ means that each person owns a separate share, with the result that, should a third party try to make a claim, they can only do so against that person’s share. In this case, it is more likely that parents will be able to pass on some, if not all, of the property.
A Lifetime Trust gives the ability to enforce uneven distribution of wealth, or disinheriting one of your children. After six years, any gifts or transfers to trusts cannot be challenged in Court under the Inheritance (Provision for Dependants) Act, enabling you to ensure your main assets are distributed in the shares YOU choose.
Protecting your children
Making a will or a trust is a very useful way of protecting your children and their future interests. For children under the age of 18, there is a possibility that they could be placed in care should both their parents pass away. This is the case even if parents have already made clear that they would wish their children to go to family members or friends – for example if a family member smokes or is obese.
Giving control to your family over how they wish to pay for care should you need it.
When faced with possible care home fees, trustees have the flexibility to decide what to do with the assets in order to assist with paying fees. For example, they might choose to rent out a property in order to help fund the cost of fees. Without this, Local Authorities have the legal right to place a charge upon someone’s home and can direct the beneficiaries on whether it should be sold or not, whereas the family may prefer to fund the care fees in a different way, preserving the value in the property.
Taking these facts into consideration, it is clear that protecting our most valuable asset is something which many of us need to consider. While it is impossible to avoid paying care home fees, it is possible to put in place some element of control over HOW the care fees are paid, should you be faced with this situation.
Probate Fees
On top of all these advantages, any assets that are held in the name of your trustees when you die will not require a Grant of Probate to be able to sell or transfer them. At the moment, getting a Grant of Probate often takes nine months or more and, during this time, your children have no access to the assets. Using a trust means they can immediately move into the property, sell the property, or even rent the property out.
The Estate Allocation Trust
Lifetime trusts are offered by many companies. However, most rely on out-of-date templates that were developed for a different original purpose. They are not “best advice” for the current tax legislation, they rely on an advisor telling their customers about some quite complex tax pitfalls (which may not happen) and they are very restrictive for many parts of the country because of high property values.
We have partnered with some true innovators in the field to offer a new generation of lifetime trust which they have called:
The Estate Allocation Trust
Why is this trust so different? The trust is split into distinct FUNDS, with each fund having a different basis for taxation. The Residence Nil Rate Band is preserved by being held on Bare Trust for the Settlor, meaning it passes under their Will, preserving access to the Residence Nil Rate Band. The main fund, a Discretionary Fund, is limited to hold the maximum amount that can be held without creating a charge to Inheritance Tax, so there can never be an Entry Charge, a 10-year anniversary charge, or an exit charge. Any additional value is then held in what is called the XS Fund, which is, again, a Bare Trust for the Settlor and passes under their Will. There is also a specific Bare Trust Fund that allows access to the Residence Nil Rate Band of a deceased spouse, this requires more complex will planning.