Sometimes organising a probate trust can be the perfect way to keep your estate simple, to avoid any protracted probate delays, and even to enable everyone to stop worrying about inheritance tax implications. A trust is a great way to give grieving families a bit of time and space to get things organised without too many – if any – complications getting in the way. It is often much more manageable this way.
There are a number of different types of trust. One of these is known as the discretionary probate trust.
A discretionary probate trust is perhaps not as simple as other trusts, but it does still allow for an easier transition that some other options. It offers a degree of flexibility after the policyholder passes away because it is the trustees who are given the discretion (hence the name) to choose who to pay from a beneficiary list. No inheritance tax will be due on this kind of inheritance because it is classed as a chargeable lifetime transfer.
However, be careful. There are some actions which can still lead to a large tax bill. For example, any gifts made within seven years of your death will be taken into account. There are many other potential pitfalls as well, and so it is always a good idea to speak to a professional about how you can bypass as many issues as possible.
A protective property trust, property protection trust, or life interest trust is a type of will that is designed specifically to stop your home from being sold to pay for any long term care home fees that you may need to pay. If the property is owned by two people, then after one of the couple dies, their share of the property passes into the trust. It means that the survivor is then able to benefit from the entire property – and upon their death the trust passes to other people, most often the children.
A protective property trust is ideal for those who are worried about the cost of long term care when they are older meaning that they have to sell their home, even though they would prefer for it to go to their children or other specified people.
In order for this to work, the family home needs to be held in joint names, as tenants in common. Then, after the death of the first owner, the title deeds will need to be transferred into the joint names of the surviving partner, and the trustees (who can also be your executors). If required, the surviving spouse can also be a trustee.
No matter who the trustees are, they cannot order the remaining spouse to leave the property – it is theirs for life. If that person needs to move into residential care later on, the share of the property in trust is not seen as an asset, and therefore it can’t be taken into consideration when looking at care home fees. However, the share that is owned by the spouse living in the house is seen as an asset. Houses cannot be split in half to sell, so it is unlikely that it will be used to pay for a care home.
If the surviving spouse decides to move home at any time, this is perfectly possible, and arrangements can be made for a trust to be set up on the new home instead.
Making a will is an important thing to do. Once it’s finished, you can put it away safely and forget about it – you can, in other words, get on with the important business of living, with the peace of mind that your family and loved ones (and your possessions, money, and property) will be looked after when you die.
But there is more than one type of will, and it is essential that you choose the right one when it comes to writing yours. All wills do the same thing; they all set out in writing what you want to happen to your assets, and who you would like to deal with them. However, that doesn’t mean that you can simply pick any type of will and be done with it. They all have slightly different meanings and consequences.
The single will is the one that most people are familiar with. It is the list of instructions from one person regarding their estate. Not only is it the most widely used type of will, but it is also the simplest. There is another, similar will, however, that you may want to consider instead of the single will. This is the mirror will, and is useful for couples. The mirror will is for couples (either married, in a civil partnership, or unmarried) who have the same ideas of what they want to happen to their estate. It means that the two wills can mirror one another, and it is often cheaper to do this than to write two single wills.
Next is the property trust will. This is for those who want to protect the value of their property. This kind of will keeps the property safe for loved ones further down the line. It won’t be able to be sold to cover care fees for the surviving partner, for example. Another type of will that protects property is the flexible interest trust will. However, these wills also protect the testator’s savings and investments. The wills are flexible (as the name suggests) which means that some beneficiaries are able to receive their inheritance straight away, and others can have their put into a trust for a later date. This is a good choice of will to use when there are two (or more) families (ie there has been an additional marriage which has produced children).
Discretionary trust wills mean that specially chosen trustees will manage the estate and portion out the inheritance as they see fit. Because people’s circumstances change, this kind of will means that those who need the inheritance the most at the time of the testator’s death will receive it. The downside of this kind of will is that someone else will be making the decisions on your behalf, and they may not choose as you would have liked.
There is also a type of will called the living will. This is a different kind of will entirely, mainly due to the fact that in order for it to come into effect, the testator must still be alive. It is used to determine exactly what kinds of medical treatment can and should be used in the event of a life changing illness or accident. It is a way of making a decision when the testator can no longer speak for themselves (perhaps due to a coma, for example).
And these are just the most common types of will – others include the unsolemn will and the notarial will as well as many more.
Parents will, for the most part, want to name their children as a beneficiary of their estate once they have died. But what happens if that child is a minor (under 18) at that time? Are they able to inherit?
The answer is that they are not able to receive their inheritance, but that doesn’t mean that you can’t name them as a beneficiary. It may sound strange, but as long as you include a caveat within the will that states that if the child is under 18 at the time of your death then their inheritance will go into trust, then there should be no problem.
But even if you don’t specify what type of trust you wish your child’s inheritance to go into, there will be an automatic trust arranged. This trust (over which you will have no say as it won’t have been arranged in advance) means that your executor will have the responsibility of the money, property, or other assets until your child becomes an adult at the age of 18.
If you set up a trust yourself, you can choose any age (over the age of 18) for your child to receive their inheritance. This can be useful if the sums are particularly large, and you feel that you would want your child or children to inherit only when they are more financially responsible, which often comes with age.
Sometimes it can be a good idea for the trustee of your child’s trust to also be the person named as their guardian. This means that everything can be looked after in one place, and there will be no confusion. However, it is perfectly possible to name different people for each role. As long as the information is written in your will, and discussed (ideally) with the people concerned beforehand, then everyone will understand what is to happen, and how.
Wills don’t only consist of listings of who you want to inherit what; wills are also a useful and impactful way to ensure that your wishes for what happens after your death are carried out – if at all possible. One of the most important pieces of information that you can include within your will is what should happen to your children (if you have any) after you die.
If their other parent is still alive, or if they are over the age of 18, this need not come into the will at all. But if your death would leave them an orphan who is under the age of 18, there will need to have been some provision made for them. The best way to make sure that they will continue to be cared for is to appoint a legal guardian.
If no guardian is included in the will then the courts will choose one for you. This may entail a court battle between different family sections (depending on the outcome), and could last for many years during which time your child or children will possibly be put into care. Not only that, but the judge may rule that a certain person will become the children’s guardian, and it might be someone you would never have wanted to do the job.
There are no set rules when it comes to choosing a guardian. You don’t, for example, have to choose a close family member such as a parent or sibling if you don’t feel that would be the right person to care for your child. Aunts and uncles, cousins, and grandparents are all eligible – as long as they understand what it takes to raise a child.
If you have no other family, or none of them are suitable to be your children’s guardian, then why not think of your friends? Good friends can be better guardians than family members sometimes, and can even have been closer than family.
There are no rules on who should or shouldn’t be guardians because it is an entirely subjective thing – the important part is that whoever is designated to look after your child or children has similar parenting values to you, and will bring the children up in a way you would be happy with. Not only will this mean that your values live on, but also that your child will feel more included, and won’t be additionally traumatised at a terribly difficult time.
If money concerns you, why not set up a trust for your children? Or name them as beneficiaries of your life insurance? The trust could even be left in the charge of the guardian, to use as is needed to ensure the child is happy and healthy, and then pass over to them when they become 18.
There are two other things that must be considered; even if the person or people you want to be guardians are perfect for the role, you need to ask a) whether your children like them and get on with them, or get on with their own children should they have any, and b) do they even want to be guardians? As much as they may adore your children, actually being responsible for them is a different matter and suddenly being confronted with the task on your death could be too much for them. Speak to them about it first, get their consent, and only then write it in your will – there will be so much upheaval for your children if you go ahead and choose them anyway, it’s just not worth doing.
How to ensure your grandchildren receive their inheritance
A recent survey by insurance company Sunlife has revealed that a large number of grandparents intend to leave part of their estate to their grandchildren, but surprisingly, don't trust their own children to ensure that these instructions are carried out.
The results of the survey showed that seven in ten grandparents plan to leave their grandchildren an inheritance. 55 percent of those grandparents are looking for ways in which they can protect this aspect of their legacy, without having to rely on their children to pass it on, according to their final wishes.
In some instances, such a legacy is not as straightforward as simply leaving a sum of money in a will. It may be that the grandparents wish to leave a property such as the family home instead – the problem being that children under the age of 18 are not legally able to own property.
One way to get around this problem is to leave assets in trust for the grandchildren. When doing so, it is vital to consider an appropriate age for the child to receive the inheritance, so that they are mature enough to use it wisely. An age contingent trust such as this is normally written into the will.
It is worth remembering however, that any assets left in a trust may incur an inheritance tax charge every ten years, of up to six percent of the value of the trust, above the IHT threshold.
The key to ensuring that your grandchildren will benefit from your estate as you would want, is to take control now and have a will and trust drafted, which both reflect your wishes and family circumstances. Through effective estate planning, it may also be possible to identify ways to reduce any inheritance tax payable on your assets.
#iwcprobate #bereaved #probate
The word ‘trust’ is one that most people have heard before in relation to wills and money. But what does it actually mean? A trust is a special legal arrangement that allows assets (including money, but it could also be property) to be ‘looked after’ by someone on behalf of the beneficiary who will have been named in the will. Trusts are ideal for keeping a child’s inheritance safe, for example, until they are old enough to receive the money.
There are many different types of trust, and each one is created for specific reasons. An asset protection trust, also known as a lifetime trust, is one of these, although it differs slightly from the usual type. Most trusts only come into existence once the person who has created it dies. An asset protection trust, however, immediately becomes established once it is made.
As the name suggests, the only thing that an asset protection trust can include is a property. Your home would go into trust as a gift, which means that you are able to continue living there. Why would anyone want to do this? For many, it is a way of being able to pass their home onto their children or other friends or relatives even if they have to go into a nursing home. When entering a home, a person’s assets are taken into account and, if there are any, they are usually sold in order to pay for their care. If the house is already in a lifetime trust, then it is as though that person does not own a property, and therefore would not need to sell it.
Be aware, however, that this cannot be the only reason for setting up the trust. If it is discovered to be the reason, your local authority may consider that you have made a ‘deliberate deprivation of assets’ and they may use the home to assess you anyway. They may also refuse to fund any care you may need.
Lifetime trusts are useful when it comes to reducing probate costs, and this can be an excellent reason for using one.
The story is like something out of a soap opera melodrama, but in this case it’s all true. Dennis Oland, 47, was recently found guilty of murdering his father, Richard. Nothing too sensational in all that, you might think – sons murder their fathers on a fairly regular albeit gruesome and upsetting basis – but in this case there was a long backstory of greed and money behind it.
Moosehead Brewery is a famous Canadian beer maker, and it is into this world that the story of the Olands is thrown. Richard was the director of Moosehead Breweries, and Dennis was the heir to the company, and the fortune that went with it.
But in July 2011, Richard’s body was discovered in a pool of blood in his office at the Moosehead Brewery headquarters. He was 69. His body was covered in multiple stab wounds, including his hands which showed that he had attempted to defend himself. It was no use, however. Along with the stab wounds, Richard’s body was also found to have suffered blunt force trauma to the head, neck and hands. It was unclear exactly which wound killed him.
Although Dennis Oland pleaded not guilty, and maintains that he was nowhere near the brewery on 7th July 2011 when his father was brutally murdered, he was convicted of second degree murder (similar to manslaughter in the UK) in a trial that gripped the town of New Brunswick in Canada. Dennis was sentenced to life in prison, although he may be able to seek parole after 10 years.
The reason behind the killing, the prosecution asserted, was that Dennis Oland was having major financial problems, and it is suggested that he went to visit his father, asked him for a bailout (not for the first time, it would seem), and when the elder Oland refused, Dennis grew violent. It may well have occurred in the ‘heat of the moment’ (hence the second degree murder charge, not first degree), but it still happened.
And despite denials of guilt from Dennis Oland, prosecutors showed that a brown jacket Dennis owned had traces of blood on it, as well as his father’s DNA.
The Moosehead dynasty will continue, but it will now move in a different direction. Many wills and trust funds will need to be updated to keep up with the new situation.
Farming inheritance battle likely to cost £1 million
A farming inheritance battle, which was eventually won by the daughter of a farming family, is likely to cost the parents around £1 million in legal fees.
This high profile case as reported in Farmers Weekly, involved one of three daughters within a farming family. Two of the daughters wanted no part of the family business but the third stated that she spent 30 years working on the 320ha farm for little or no salary. Indeed, Eirian Davies said that she didn't receive any wages at all until she was 21 years old.
In return, it seems that her parents showed her a draft will in 2009 which gave details indicating that the entire farm, worth £3.8 million, would be left to Eirian. At some point in time after this event however, the will was changed, putting the farm in trust so that all three daughters would benefit equally.
The woman's parents sought to evict her from a cottage on the farm where she still lives and argued that they had left Eirian enough to buy a house, but the court ruled that this was not enough to compensate her for her suffering and did not reflect their original promise to her, awarding Ms Davies £1.3 million.
Since the court case a few weeks ago, there has been an indication that Mr and Mrs Davies are to attend another hearing on 18 March which may allow them to appeal against the compensation award given to their daughter or to delay the payment. Meanwhile, Eirian's lawyer says that he will use this hearing to apply for costs to be reimbursed, which his client incurred during the Court of Appeal and High Court hearings. If successful, the final legal bill for Mr and Mrs Davies is likely to reach up to £1 million.
#iwcprobate #inheritancetax #probate
What is deliberate deprivation of assets?
A typical example of the term deliberate deprivation of assets was given recently, in a case whereby a woman had been diagnosed with dementia and her children wanted to know if they could set up a trust fund or have her sign over her share of the house in order to avoid paying inheritance tax and allocate the money instead towards their mother's future care.
Firstly, as the woman had already been diagnosed with dementia, it was unclear whether she would have the mental capacity to make any legal arrangements such as share transfers.
Assuming that she still did have the mental capacity however, there was still the problem of deliberate deprivation of assets.
If the mother gave the house away or sold it six months or less before she went into a care home, this would be deemed deliberate deprivation of assets by her local authority. If the actions were carried out earlier, then she could still be the subject of a review, with the potential of reversing any activity which had taken place.
The amount of inheritance tax which would be ultimately due on the woman's estate would depend on:
- the value of the final estate (if it is valued over £325,000 then inheritance tax would be payable at 40%)
- whether she survived for at least seven years after making a gift of the property
If you suspect your parent may be showing the first signs of dementia or another form of senility, then it would be helpful for them to plan their estate, so this could be done much more simply and effectively, before power of attorney is finally sought.