Will Trusts allow you to set up a Trust and appoint Trustees in your Will in order to manage your affairs after death.
Will Trusts have no legal standing while the holder is alive; they come into force on death.
If your financial, business or family circumstances change and you haven’t updated your Will to reflect that change, your Trustees can make changes under Trust after your death.
Setting up a Trust within your Will usually only comes into play for people with a large estate or significant financial assets. Trusts can be complex and we strongly advise that you only add one yourself to your Final Fling Will if you’re sure you know what you’re doing.
For impartial advice, please contact one of our independent advisers.
Two Year Discretionary Trust
This Trust is appropriate where a large amount of flexibility is required.
It suits the situation where you would rather wait until after the first death and then make a decision as to what to do with your Estate to maximise inheritance tax efficiency.
Advantages of this type of Trust:
- Total flexibility: if circumstances change between creating your Will and death your Trustees can act for you.
- Unmarried couples can maximise the use of their respective inheritance tax thresholds and also any proportion on their joint Estate on which ‘double-inheritance tax’ is not paid.
Disadvantages of this type of Trust:
- It can involve more work for your Executors and Trustees than a standard Will as they will have to set up a Trust but this should not be hugely onerous and if it is appropriate the benefits will be worth this effort.
- You should bear in mind that the Executors you appoint will have wide ranging powers and so you should be sure that you can Trust their judgement.
Discretionary Business Will Trusts
This Trust (sometimes known by the unfortunate Spousal Bypass) allows business owners’ interest in their business to be put into a Discretionary Trust for their beneficiaries. If you own business assets such as a shop or shares in an unlisted company, they are likely to be exempt from inheritance tax. HMRC’s website lists assets that qualify for this.
If you leave shares in a business to your partner or other beneficiary who sells them eg to Fund their retirement, any capital remaining on their death may be subject to inheritance tax.
If you leave the shares or assets in Trust, your partner or other beneficiary can take the assets as a loan which has to be repaid on their death and therefore the value will be protected from inheritance tax on their death.
If you have a partnership agreement that provides for your business partners or fellow directors to buy shares or assets from your spouse or partner, when they do so, they will be buying the business assets from the Trust, making cash available to your spouse and family while protecting it from inheritance tax for up to 80 years. Income tax savings can apply as with other Trusts.
It’s important to have a partnership agreement or shareholder’s agreement in place as well as relevant Wills and Trusts for all business partners.
Property Liferent Legacy
If you wish to ensure that your partner, companion or flatmate can live on in your home before passing it on to children or other beneficiaries, you may wish to consider setting up a “liferent” legacy in your property. This restricts the person’s inheritance to the use of your home. On the death of this person your home will pass to whoever you have specified in the ‘residue’ clause in your Will.
Advisory: the beneficiary of a liferent legacy doesn’t own the property but has use of it for life; they cannot leave this in their own Will.
Will Trusts for People with Disabilities
If you have a child or other dependent with disabilities, you can leave money to them using a Trust for People with Disabilities in your Will. This Trust can offer tax benefits and can protect these assets from being considered as part of the beneficiary’s assets when being assessed by the local authority or other bodies.
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