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A Trust can be a good idea

  • Avoid unwanted claims on your property
  • Avoid sideways disinheritance
  • Avoid expensive probate fees & delays
  • Protect your assets from bankruptcy
  • Financially protect yourself from divorce
  • Plan for loss of capacity

The Financial Conduct Authority does not regulate wills and trusts.

Classification of Trusts

  • Fixed Trust - Settlor determines beneficial interests:

    'to Trustees upon Trust for my children AB & C in equal shares,' or 'for A for her lifetime, then to B in remainder,'

  • Discretionary Trust - Settlor delegates power to someone else

    'I leave the sum of £25,000 to my Trustees, to distribute amongst any of my children as they, in their absolute discretion shall determine'

  • Powers of Appointment (not Trusts in themselves but can be contained in a Trust, which dictates the transfer of property)

    Defined by Hanbury & Martin as 'an authorisation to do certain things which affect property to which the appointer is not solely entitled to and, in which he may have no beneficial interest in at all'

Will Trust – is this for you?

A Will Trust is often known as Protective Property Trust and involve changing the way you own your family home from joint ownership to 'tenants in common'. The Trust comes into being on the death of the first partner. This can achieve the desired outcome for many people who wish to leave their share of the property to beneficiaries who otherwise might not inherit such as children from previous relationship.

Trust Will is relatively inexpensive to set up and has its benefits for many married and cohabiting couples.

Until recently, nil-rate band will Trusts were a common way of saving inheritance tax (IHT). A couple potentially liable could split their estate into halves, both below the nil-rate band. However, since 2007 the ability to transfer unused IHT allowance ended the need to make this type of will Trust for most couples, although they still ring fence assets against potential fees should you or your partner go into long-term care.

Will Trusts and long-term care

Although you are not a beneficial owner of your partners share, you do retain a life interest in the share, providing you with security and peace of mind.

When you pass away, your share is protected in a Trust for your beneficiaries. Therefore, the local authority will only assess the share of the person going into care. This arrangement will not be contested as 'deliberate deprivation' of assets, meaning that you have deliberately split your assets to avoid paying high care-home fees as suggested by the Government rules (Charging for Residential Accommodation Guide).

Will Trusts and inheritance

'Sideways disinheritance' occurs when the first partner dies, leaving children from the marriage who might reasonably expect to inherit some of the family estate in due course, however if the surviving partner remarries and fails to make provision for their children in a new will, there's a risk that everything will go to their new spouse instead. This situation can be avoided by setting up a Will Trust.

Lifetime Family Trust

Lifetime Family Trust is often known as Asset Protection Trust. Unlike Will Trust, this is established straight away. Lifetime Family Trust is far more expensive than basic Will or Will Trust.

As this involves transferring your family home into a Trust while you continue to live in it, it offers valuable benefits from ensuring that your home will pass to those individuals you wish to benefit at a time selected by you – for example, when you die to passing control of your home to the Trustees should you lose capacity. As you no longer own your family home in your personal name, it may avoid the value of your home being included in a local authority means test for residential or domiciliary care.

Lifetime Family Trust and Care

Anyone considering setting up a Lifetime Family Trust for this reason should be aware that a local authority may regard this arrangement as 'deliberate deprivation of assets' and potentially refuse to fund your care.

Full legal ownership – before Trust declaration

Full legal owner has both legal title and equitable title - whole of the interest - meaning he/she can buy/sell/give away/enjoy

Separation of title – after

Bare legal title - Trustee is in control of the administration of the trust

Equitable title - beneficiary has the right to enjoyment of the property

What is a Trust

A Trust arises when legal title and beneficial (equitable) ownership are split. When no Trust is in existence, the person with legal title to property is said to have absolute title to it (sometimes, confusingly, a person who receives absolute legal title to property is also said to take beneficially. This means that the person takes legal title with all of the benefits of ownership that are usually associated with legal title when no Trust is involved). If a Trust arises over that property, the person with legal title to the property has what is called bare legal title to it. This is because the beneficiaries have the beneficial interest in the property, and the legal owner of the property must now hold it for the benefit of the beneficiaries. Note that, strictly speaking, the beneficiary is not the owner of the Trust property because his interest may only be enforced by way of a personal order against the Trustee. The beneficiaries, however, are what a layman may consider to be the ‘real owners’ of the Trust property.

A Trust is mandatory, meaning that the Trustees must perform the Trust according to its terms. A Trustee who deviates from the terms of the Trust is liable for breach of Trust. Trusteeship is also a fiduciary position, meaning that the Trustee owes certain fiduciaries to the beneficiaries which are intended to ensure that the Trustees act with loyalty. The overriding fiduciary duty is for the Trustees to act in good faith in the best interests of the beneficiaries. There are a number of other fiduciary duties which our advisor can discuss with you.

The Parties and their roles

Settlor, Trustee, Beneficiary

Their Role

  • The Settlor
    The Settlor establishes the Trust by deciding:
    • which property forms the subject matter of the Trust
    • who the Trustees are (can appoint self as Trustee)
    • who the beneficiaries are and,
    • the terms of the Trust
  • The Trustee
    Upon separation of title, the Trustee has bare legal title over property which gives him/her the legal right to deal with the property. The Trustees duties in relation to performance of the Trust are generally controlled by the Trust instrument but, certain statutory provisions act in default, if the Trust instrument is silent.
  • The Beneficiary
    Upon separation of title, the beneficiary has equitable title, giving right to the enjoyment of the property and is the owner of the equitable interest in the property. The beneficiary can compel the Trustees to perform the Trust. They are sometimes said to be the ‘true’ owners of Trust property.

Lifetime Family Trust can be considered as a prudent move

  1. The Trust allows the Settlors to express their general affection and moral obligations towards their family and to be assured that the nominated family members will benefit from the family Trust. With a 700% increase in challenges to wills in recent years and long delays in estate administration, plus substantial legal costs, the Trust may avoid such issues.
  2. It will protect the Settlors in that subsequent decisions will be “family-driven” and will assist the family to make sensible decisions where the Settlors are concerned. The burden of property ownership passes to the Trustees, which will assist the Settlors as they advance in age and problems with the Property may arise.
  3. Where the Settlors are showing signs of dementia or other lack of capacity, the family can still take decisions on their behalf with their interests in mind.
  4. It will assist with administrative efficiency in that the paperwork relating to the Property can be dealt with by the Trustees. If the Settlors lose capacity, the Trustees can still take decisions for them.
  5. Formalities surrounding the exercise of a Lasting Power of Attorney might in some situations make taking decisions with the regard to assets cumbersome and unsatisfactory.
  6. It will protect against ‘sideways disinheritance’ and preserve assets.
  7. It will assist the family with regard to inheritance tax planning and possible generation skipping, in that, if on the death of the settlors, the next generation did not need the Trust Fund, it could be held in Trust for the grandchildren for university fees, or funds could be loaned to them on beneficial terms.
  8. If the Property is sold, the Settlors retain the right to income for life and subject to the Trustees discretion, capital payments can be made where appropriate.
  9. It gives protection and peace of mind for the Settlors because they are aware that the Trustees do not own the property in the Trust Fund outright. As the Settlors are life tenants it is the primary object of the Trust to look after their interests. The property and other assets in the Trust are protected from the Trustees creditors and the Trust can continue after the Settlors deaths for the benefit of family members offering them the same sort of benefits and protection.
  10. It will simplify probate procedures on the deaths of the Settlors as regards the appointment of assets and avoid delays in probate administration as the property can be transferred without the necessity of a grant of probate, as title to the assets is already held by the Trustees and under their control.