Estate Planning and Trusts
Using Trusts As Part Of Your Estate Planning Solutions
Using Wills and Trusts as part of your overall Estate Planning strategy is the only way to ensure that your estate is distributed to the people you would like to benefit from it.
Making a Will ensures your Estate passes through Probate quickly.
If you don`t make a Will, the Law determines who will benefit from your Estate and in what shares. Under Legal `intestacy rules`, your estate can only pass to a spouse, certain blood relatives. Or if there are none, it will go to the Treasury. With 9,000 Intestate cases last year. In 4,000 of these cases, the surviving spouse/ partner did not inherit all of the estate.
What is a Trust?
Trusts have been around since Medieval times and were originally created for Nobility and wealthy landowners to avoid paying taxes to the Crown.
Whilst Trusts have changed substantially since then Trusts can still reduce or eliminate inheritance tax payable and will increase the amount of inheritance passed down to your children.
In simple terms, a Trust is a legal contract in which you (the settlor) give something you own to somebody (your beneficiary).
Trusts can significantly reduce Inheritance Tax payable
Assets assigned to Trusts are protected from bankruptcy courts.
Assets assigned to Trusts are protected from divorce settlements.
Who is involved in making a Trust?
Settlor (the person who creates the Trust and ‘settles’ assets into the Trust).
Trustees (people who the settlor has chosen to manage their Trust).
Beneficiaries (the people who will benefit from the Trust).
Why place assets into a Trust? Is it not sufficient to leave them in a Will?
Avoid timely and costly probate
Assets placed in Trust can be accessed immediately on the death of the settlor. Whereas if the asset was left in a Will then the beneficiary would have to wait for the Will to go through probate before any assets could be released from the deceased’s estate. Probate can take many years in some cases and is often an expensive process.
Protection from debt collectors and divorce settlements
Assets placed in Trust are protected from being assessed to repay any outstanding debts your beneficiaries may have.
As assets in Trusts are not formally classed as part of your beneficiaries estate. They are also protected from any future divorce settlement your beneficiary may go through.
Protect your home from being sold to pay for care
Assets placed in Trust (including your family home) are protected from being sold to pay for care home fees as long as enough time has passed between the creation of the Trust and the Settlor’s admission to care.
However, there can be no absolute guarantee that Trusts can protect your home from care home fees. This is because we do not have a crystal ball with regard to how future legislation may change the law with regard to assessment and means testing of care home fees. You must also be mindful of deliberate deprivation of assets.
Reduces Tax Payable
Inheritance tax is not usually payable on assets placed in Trust. Inheritance tax is a tax levied on your children after they lose both parents and is charged at a huge 40%.
A recent article by money marketing showed that £1.3bn is paid every year needlessly by people who do not take action to mitigate against Inheritance Tax (IHT). With some simple estate planning utilising Trusts you can reduce or eliminate the inheritance tax you pay and increase the amount of inheritance passed down to your children.