Category Archives: Trusts

Using Trusts in Wills

The different uses of trusts within Wills…

Using your Will to set up a trust allows you to set out exactly who you want to benefit from your assets and protect your money from being spent where you wouldn’t want.

When leaving money or property in a Will, there is sometimes a risk that it may not end up where you meant it to be.

For example, a jointly owned property left to your spouse may be at risk of being sold to pay for care home fees, or money may be left to someone who at present is not in a position to use it wisely.

Setting up a Will trust allows you to dictate in detail who gets what, and when.

Protecting your share of a house

You may well want your spouse or partner to be able to continue to live in your shared home for as long as they want, but if they simply inherit it, then should they need to move to a care home, the whole value of the house will count as their own. This would then be taken into account when assessing their entitlement to help with fees.

Your solicitor will be able to draw up a Will allowing you to leave your share of your home to your children or other beneficiaries, but with your spouse or partner still able to live there as long as they wish. This means that your share of the house will ultimately pass to your children or other beneficiaries.

Passing your home to your children

Similarly, if you’ve remarried during your life, you may want your new spouse to have the benefit of your shared home for the rest of their life, but after that you want it to pass to your children.

A trust in your Will can make this possible, preventing the possibility that your share in your home be left by your spouse to someone other than your children.

Leaving a gift in trust

Setting up a trust allows you to leave money to someone under 18, to a person who is not able to manage their own affairs or to a recipient of state benefits, which might be withdrawn if they were to inherit a large cash sum.

Trustees will be in charge of the money, giving it to the beneficiary in accordance with your wishes, for example for living expenses or continuing education.

Leaving a life interest in assets

You can set up a trust via your Will so that a person receives income from the assets in your estate, but when they die, the capital is passed to the beneficiary of your choice. This allows someone’s funds to live on but prevents them from leaving the main capital under the terms of their Will.

Ask one of our specialist team at legalmatters to help you draw up the Will that allows you to leave your assets exactly as you wish. Call us to discuss your Will on 01243 216900 or email us at info@legalmatters.co.uk.

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Protecting your children

Will my stepchildren inherit my assets when I remarry?

A second marriage can be very complicated when it comes to making sure your family inherit exactly what you want them to have.

The first thing to know is that any previous Will you have made becomes invalid when you marry, unless it was specifically made in contemplation of the marriage.

If you and/or your new spouse have children, you both need to sit down and work out what assets you have and who you would like them to be ultimately passed on to.

If you don’t make a Will

When someone dies without making a Will, their estate passes under the Intestacy Rules, which give all personal possessions plus the first £250,000 to the spouse. Any sum over and above £250,000 will be shared, with 50% going to the spouse and 50% shared between any children.

Stepchildren are not included at all. This can mean that if your spouse inherits your estate and then dies without writing a Will, your children would not be entitled to anything.

If you do make a Will

If you make a Will leaving everything to your spouse, with the understanding that they will then leave your children your assets when they die, you have no guarantee that this will actually happen.

As time passes, they may change their mind and decide to leave their estate elsewhere, or they may fall into debt or need funds for care home costs.

The way to avoid this is to have a Will drawn up so that your spouse has a lifetime interest in your property and assets, but on their death the capital passes to your children.

What to do about your Will when you remarry

Because any previous Will becomes void on marriage, you should sit down with your new spouse and decide who you want to inherit. Its particularly important when family situations are complicated, for example with different sets of children and stepchildren, to get expert help in drawing up a Will that includes the necessary trusts.

It is also important that Wills are unambiguous to avoid disputes after someone dies. If possible, you should talk things through with any children and stepchildren so that they understand what your wishes are and what will happen to your estate after you die.

A specialist Trusts and Probate lawyer from legalmatters will be able to put your requirements into a valid Will and this should avoid any arguments arising at a later date.

If writing – or updating – your Will is one of your 2019 New Year’s Resolutions, don’t put it off. Speak to one of our expert lawyers at legalmatters on 01243 216900 or email us at info@legalmatters.co.uk.

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Protecting a disabled child

Include a Trust in your Will to protect disabled children

If you have a child with a disability, planning for their future is vital. While it is understandably difficult to imagine a time when you won’t be around to care for your child, you will want to ensure that they are taken care of.

By including a Trust in your Will, you can provide for your disabled child when you are gone.

A Trust is often a better option than just leaving a specified amount in a Will. Especially where:

  • Leaving your child with a large amount of money could put them in a vulnerable position. For example, making them a target of abuse from others
  • Where your child is not able to deal with their own finances
  • Where your child could lose their means-tested benefits.

Of course, you could leave all your money to someone you trust, on the basis that they look after your child. But this option is fraught with difficulties.

Firstly, you never know how someone’s changing situation and finances (e.g. divorce, bankruptcy, etc.) could impact your child. Secondly, if they die, their estate could go directly to their children (or other beneficiaries), leaving your child with nothing.

Establishing a Trust helps to avoid such uncertainties and ring-fences the inheritance earmarked for your disabled child.

Trusts in Wills

When you create a Trust, you can establish in the terms in your Will.

There are different types of Trusts and they each work in different ways. It pays to speak to a solicitor to ensure the right Trust for your circumstances.

Where a disabled child is involved this could be a Disabled Person’s Trust.

Disabled Person’s Trusts

A Disabled Person’s Trust lets you leave some or all of your estate to a beneficiary who is unable to manage the inheritance themselves.

You establish the amount of the Trust and the people you want to manage the inheritance on behalf of the disabled beneficiary. These people are called the Trustees.

You can also leave a Letter of Wishes stating how you would prefer the Trust to be used. This will help the Trustees to carry out their duties as you would want.

A Disabled Person’s Trust does not affect any means-tested benefits, and the money cannot be used to pay off any debt (or be considered an asset in a divorce etc.). Furthermore, your child cannot be coerced into giving away the assets in the Trust or using the money for other purposes.

If you have a disabled child and would like to protect them in your Will, speak to one of our expert team by calling legalmatters on 01243 216900  or email us at info@legalmatters.co.uk.

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Understanding Inheritance Tax

Most over 50s don’t understand Inheritance Tax…

According to the latest research, the majority of over-50s don’t understand essential Inheritance Tax terminology. Furthermore, this lack of financial education could result in them passing on less than they expect.

The research, from Alan Boswell Group, found that of the over-50s surveyed:

  • Fewer than 30% understood key Inheritance Tax terminology
  • Only 27% were able to correctly identify that ‘nil-rate band’ referred to the threshold at which an estate became liable to Inheritance Tax and that this threshold is set at £325,000
  • Only 44% were aware that the current rate of Inheritance Tax was 40%.

With the Government announcing record Inheritance Tax receipts of over £5bn in 2017/18 (that’s an increase of over 50% since 2014), there are fears that people could be failing to minimise their tax liability correctly.

Rising property prices are impacting Inheritance Tax liability

An increase in property prices across the UK has meant that more and more people are now liable for Inheritance Tax.

Since 2009, the tax has been set at 40% on all assets over the £325,000 threshold; despite the fact that house prices have rocketed over the past ten years. What this means is that Inheritance Tax now hits an increasing number of estates. Before 2009, the threshold was set each year to reflect inflation and rises in overall asset prices.

As such, it’s perhaps no surprise that forecasts from the Office for Budget Responsibility (OBR) show that the number of estates on which Inheritance Tax is paid has more than quadrupled over the last seven years.

It’s also important to note the introduction of the residence nil-rate band (RNRB) last year, providing an additional inheritance tax allowance for individuals who leave their main residence to lineal descendants.

The additional allowance is to be brought in gradually, increasing by £25,000 on an annual basis. The amount began at £100,000 in 2017/18 and eventually grow to £175,000 in 2020/21.

In total, as this is on top of the current threshold, this amounts to an allowance of £1 million for a couple.

The problem facing the over-50s

With Inheritance Tax affecting more people than ever before, it is vital that the over-50s are fully informed about this topic. Worryingly, however, the latest research shows that this is not the case. As a result, it is likely that families will lose out while the Government benefits.

But there are ways to reduce a person’s Inheritance Tax liability (e.g. by using ISAs, a deed of variation, discretionary will trusts, etc.). So, it is vital that careful and professional estate planning is carried out to ensure assets are left to family members rather than the taxman.

To find out how you can pass on your estate in a tax-efficient way, speak to one of our expert team at legalmatters on 01243 216900 or email us at info@legalmatters.co.uk.

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Critical Event Protection…

What is Critical Event Protection and is it relevant to me?

If you are a member of a Death in Service Scheme, if you have a separate Critical Illness and Life Insurance Policy or even if you have a Pension Plan, you should look at Critical Event Protection.

What are these schemes and policies for?

Death in service schemes are often part of your employers’ group policy scheme which provides a lump sum for family or to cover the death of a shareholder in a business.

Critical illness policies produce an income supplement in the event of a critical illness and on death there is usually a lump sum paid.

Life insurance policies may make provision to cover inheritance tax, provide a lump sum for family or to cover the death of a shareholder in a business.

An occupational or self-invested pension plan may have a lump sum which will be paid on death.

What happens to these assets when I die and why would I need Critical Event Protection?

These valuable assets usually only pass to your next of kin if you’ve nominated them. If you haven’t, they go into your estate and may then become subject to Inheritance Tax at 40%. In this way, sometimes funds are wasted or end up with people you don’t even know yet, for example if your current partner or next of kin starts a new relationship.

How can I protect these assets for my dependents?

Using a trust preserves the use of these funds for your dependents, avoids direct ownership, can avoid the need to incur estate administration costs and may save inheritance tax. A trust protects and ringfences these lump sum proceeds and means a quick claim by the trustees upon your death can make the funds available in a protected trust environment to meet family costs.

At legalmatters, we have put together a simple solution, which will enable you to deal with these valuable assets, called Critical Event Protection.

To find out more, download the Critical Event Protection Guide or speak to one of our legal team on 01243 216900 or e-mail info@legalmatters.co.uk.

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What is a Trust?

A trust is a legally binding arrangement where an individual or group (settlor) delegates the management of money or assets to another person or an organisation (the trustees), who in turn passes them to a person/people (beneficiaries). Here’s more information on trusts, why people set them up and the sort of trust funds available in the UK…

When people set up a trust
The money or assets involved in a trust are usually designated to support a person who can’t manage money, such as a child or a person with limited mental capacity or a learning disability.
A trust may also be used in reverse. This is when your own money is used to look after you if you’re unable to look after yourself due to an illness or disability.

The costs of setting up a trust
As trusts can be complex, they should really be set up with professional help to avoid any costly mistakes. Usually, setting up a trust costs around £1,000, but if you’re setting up a trust for a disabled child there are a number of charities, such as Mencap, offering contribution schemes to assist with the financial aspect.

Reasons for setting up a trust
There are a number of different reasons why families, groups and organisations may set up a trust, some of which include:

  • Protect those who are unable to control their spending
  • Protect family assets and keep them in the family
  • Safeguard assets against bankruptcy
  • If the beneficiary is a child or someone with a learning disability (including adults)
  • A company distributing pensions over the duration of an individual’s employment.

There are many different types of trusts, although bare or absolute trusts are the most popular type of trust that people can set up in the UK. The settlor transfers money or assets to the trust for the trustees to look after and, when the beneficiary turns 18 years old, they receive all the assets and money from the trust.

An interest in possession trust involves the trustees transferring all trust capital to the beneficiary for a fixed period of time – usually for the rest of their life. The beneficiary is then known as a ‘life tenant’ and the trust is known as a ‘life interest trust.’ The interest in possession will end when the life tenant dies and the ‘capital beneficiaries’ (usually the children when the income beneficiary spouse dies) inherit the capital of the trust.

To find out more about Trusts, and help in deciding which is best for your own circumstances, give us a ring on 01243 216900 or e-mail us at info@legalmatters.co.uk.

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Why do I need a Trust?

A Trust can be used to help manage your assets, to protect your legacy, and look after those you care about. And today, while the tax advantages of a Trust have been reduced, they are becoming increasingly popular.

What is a Trust?

Trusts are used to hold and manage money or other assets on behalf of its beneficiaries. There are various types of Trusts and many different reasons for using them. For example:

  • To provide a secure way of holding money for children who are too young to handle a large inheritance
  • To pass on assets when you are still alive
  • To protect vulnerable or disabled people who are incapable of looking after their own affairs
  • To minimise estate and inheritance tax (IHT) liabilities
  • To create a contingency fund to look after you during your lifetime (e.g. should you become unable to take care of yourself due to mental or physical health).

Once assets are placed in a Trust, they are no longer owned by the person who set it up. Therefore, they are protected from claims from creditors, family disagreements, financial setbacks, lawsuits etc.

Who is involved?

There are three main parties involved in a Trust:

  1. The settlor. The person(s) who puts assets into a Trust.
  2. The beneficiary. The person(s), organisation or anything else (e.g. a pet) that benefits from the Trust
  3. The trustee. The person(s) who manages the Trust

Beneficiaries and trustees are appointed by the settlor. While in most cases these parties are all different, in some circumstances the settlor or trustee may also be a beneficiary.

Who can be a trustee?

A trustee can be a person the settlor knows and trusts. For example, a friend or family member. The trustee can also be an entity such as a solicitor’s firm. A Trust must always have at least one trustee. Multiple trustees can be appointed – this is recommended in case something happens to an individual trustee. Ideally, you should have at least two trustees, but no more than three or four.

The role of a trustee is to:

  • Deal with assets according to the settlor’s wishes
  • Manage the Trust on a day-to-day basis
  • Pay any tax due (from the Trust)
  • Decide how to invest or use the Trust’s assets.

What are the rules?

When you create a Trust, you establish the rules by which the trustee must manage it. However, the legal wording needs to be exact, so you should ask a qualified professional to set it up for you.

To find out more about Trusts and what they can do for you, speak to one of our team at legalmatters on 01243 216900 or email us at info@legalmatters.co.uk for further details.

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Trusts vs Prenups

Some recent research indicated a rise in families using discretionary trusts instead of pre-nuptial agreements to protect family assets.

Typically, people think of pre-nuptial agreements as the standard approach for couples to take when considering marriage. They are designed to separate personal property and wealth accumulated prior to marriage and safeguard it in the event of a divorce.

However, although a court will take a prenup into consideration if a couple are divorcing, they are not legally binding in the UK.

Whilst courts tend to uphold them, there are many factors which can result in them not being upheld, perhaps if the court deems the agreement unfair, if the couple did not receive independent advice, for instance.

Equally, prenups still hold a certain stigma and couples and families can often feel uncomfortable discussing them.

On the other hand, discretionary trusts are viewed more as a planning tool and allow parents to protect family wealth and assets against a future divorce.

Typically, in this type of trust, the parents will set themselves up as trustees. As well as having full control over the assets, they can also decide who can benefit from the trust whilst maintaining discretion to make payments or transfer assets from the trust if they wish.

Each parent can put up to £325,000 into a discretionary trust during their lifetime. (This figure may be reduced if other gifts have been made). As long as the value of the gifts made and the value being put into the trust do not exceed £325,000 in the last seven years there will be no immediate inheritance tax to pay either. If the parents live for another seven years, these assets will not form part of the estate for inheritance tax purposes.

In light of these factors, discretionary trusts are certainly something that families should consider. Not only can it protect family wealth in the event of a divorce later on, it can also help to reduce a future inheritance tax bill.

Whilst they are complex, setting up a trust can be straightforward if you received the right advice. As well as minimising tax responsibilities a trust can also help to protect your assets in the future.

To find out how you could benefit from a prenup or a trust, give us a call at legalmatters on 01243 216900 or email us at info@legalmatters.co.uk for further details.

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Grandparents and gifting options…

Many grandparents are intending to gift their grandchildren financially, with recent research from Saga suggesting that more than £37bn has passed from grandparents to their grandchildren.

Part of this is down to the fact that older people are worried about their grandchildren’s future. The increase in cost of houses, cars and the day to day necessities mean they’re likely to suffer financially and be much worse off than those of generations gone by.

So how could you go about helping out your younger relatives?

Skipping a generation

According to the research, around 14% of parents are skipping a generation and are instead looking to leave assets to their grandchildren.

Making use of a gift allowance

In certain scenarios, grandparents are choosing to give money without causing a tax event such as a £3,000 annual gift allowance. This can cover financial gifts which can be passed over each year, free of Inheritance Tax. Additionally, grandparents can also give away up to £250 to any number of people each year.

Putting it in a trust

With a discretionary trust, it is up to the trustees to determine how and when any potential beneficiaries may be able to access the cash. You can appoint yourself as the trustee, so that you have final say over where the money goes, or you can go for an independent trustee. What’s more, the money within the trust is classed as separate from your estate, so it’s free of Inheritance Tax.

There are also bare trusts, which mean the grandchildren would be completely entitled to whatever is in the trust once they reach 18. Unlike the discretionary trust, the beneficiaries are fixed, so once the trust is declared it is not possible to add (or remove) beneficiaries.

It’s important that you consider where and to whom you want your assets to go to – a comprehensive will is the only place where you can formally set this out.

Don’t keep putting it off. Speak to legalmatters today to make sure that your final wishes are carried out. Call us on 01243 216900 or email us at info@legalmatters.co.uk

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Estate Planning – Who’s Who?

There are some fairly obvious legal words used when writing a Will but here’s a definition of some of those which might otherwise be misunderstood.

Administrator (sometimes administratix for a woman) – the person appointed by law to settle the affairs of someone who dies without a Will, so usually their next of kin.

Beneficiaries – this is anyone – a person, organisation or charity – left an inheritance (legacy, gift, trust) in a Will, or if there is no Will, under the intestacy rules.

Substitutional beneficiary – if a beneficiary dies before the person making the Will, a substitutional beneficiary will receive a gift in their place.

Bereaved – those surviving the deceased.

Crown or Treasury – this refers to the Government. If you don’t have a Will and have no next of kin, the Crown receives your estate.

Deceased – the person who has died.

Dependents – anyone who is cared for by the person making the Will. It normally includes children, spouse or elderly/sick relatives.

Executor (sometimes executrix for a woman) – the person or people you choose to make sure the instructions in your Will are carried out. You can choose a family member, a friend or a probate professional. An executor may also be a beneficiary of the Will.

Guardian – someone named in a Will who is appointed to take parental responsibility for any children aged under 18 at the time of the person making the Will’s death. They are known as a testamentary guardian.

Issue – this refers to a person’s lineal descendants. So their children, grandchildren and great-grandchildren. It does not include step-children.

Personal Representative – a general term for anyone in charge of administering a deceased person’s estate. It could refer to an executor or administrator of the Will.

Power of Attorney – a Power of Attorney may be given by executors and administrators to probate professionals to allow them to sort the Will without having to ask the executors to sign everything.

Trustee – a person or a Trust corporation (such as a bank) appointed to administer any Trusts created by a Will or arising under the rules of intestacy (so when there is no Will).

Testator (sometimes testatrix for a woman) – the person making the Will.

Child of the testator – in law this refers to children of the testator and includes legitimate, illegitimate, adopted and some surrogate children, but not automatically step-children.

Wards of Court – orphaned children with no appointed guardians are made wards of court. The court then decides what happens to them.

Witness – you must have two witnesses to see you sign your Will. You must watch them sign it and they must also watch each other sign it. You can’t choose a beneficiary (or their spouse) to witness your Will.

It’s important to be clear when drawing up legal documents. Legalmatters can help, we’re always happy to discuss your needs or answer your questions. Call us today on 01243 216900 or email us at info@legalmatters.co.uk for further details.