What is a Trust Will?
A Trust Will is a Trust which is contained within a Will to take effect when you die. They are commonly drafted for a husband and wife, to safeguard assets for beneficiaries. However, they can also be drafted by individuals to protect young or vulnerable beneficiaries or to maximise tax relief.
What types of Trust Wills are available?
Bare Trust – this is a simple type of Trust, where trustees manage assets until the beneficiary reaches the age of 18, at which point the Trust ends and the beneficiary receives their inheritance. This type of Trust will be included in any Will which includes a beneficiary who may potentially be under the age of 18 at the testator’s death.
Discretionary Trust – this is a type of Trust where the trustees have wide discretion as to when and how payments are made from the Trust Fund. The person making the Will can name a range of people who can benefit and direct the trustee to decide who will actually benefit. This can potentially be a very tax efficient Trust Will with the trustees being able to ensure that couples who have been widowed can benefit from more than two nil-rate bands and can also take advantage of other inheritance tax reliefs, such as business property relief and agricultural property relief.
Life Interest Trust – this is the most common type of Trust Will which clients instruct us to draft. This is also the type of Trust Will which can include a Property Protection Trust. This type of Trust is popular with couples, especially those with children from previous relationships, or those concerned if their surviving spouse may require long-term care.
What is involved in a Life Interest Trust incorporating a Property Protection Trust?
For a Property Protection Trust to take effect, the couple making the Will must own their property as tenants in common. This is where they jointly own the property but both own 50% each, rather than collectively own 100% as joint tenants. If a couple own their property as joint tenants then the law allows the survivor to inherit their partner’s share of the property, regardless of what their Will says. We therefore change the clients ownership to tenants in common so that the couple can include their 50% share of the property in their Trust Will.
The client can then specify in their Trust Will that their 50% share of the property is to be held for their children, whilst allowing the surviving spouse to continue to live in the property until they die. This effectively ring fences their share of the property, protecting it for the intended beneficiary. For example, if the surviving spouse was to remarry, they would not be able to give the assets away.
Similarly, if the surviving spouse was to go into long-term care, the 50% share of the property cannot, under current legislation, be taken into account as an asset of the surviving spouse.
However, whilst these Trust Wills protect assets for the intended beneficiaries, it is important to note that the surviving spouse is protected under the Trust Will. They cannot be forced to leave the property, the property cannot be sold without their consent and the Trust does not end until they die or decide to live elsewhere. The Trust is set up to benefit the ‘life tenant’ i.e. the surviving spouse.
What are the disadvantages of a Property Protection Trust?
There is no absolute gift to the surviving spouse and some clients dislike the idea of assets being controlled by trustees. There are also formalities required in transferring the assets when the Trust comes into force. The Trustees would need to instruct a practitioner specialising in Trust law to allow the Trust Will to take effect.
The Trust does not come into effect until one of the couple has died, so if both were to go into long-term care, the property subject to the Will would not be protected from care home fees. If your intention is to ring fence your assets immediately, then you should consider setting up a Trust to take effect now, rather than upon the death of your spouse. You can visit our Trusts page for further information.
Contact us today for a no obligation appointment to discuss your Will.