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Will Trusts and Asset Trusts

Most people need  a Will Trust or an Asset Trust as part of their estate planning

 

However, trusts can be set up unintentionally such as where eg a minor (somebody aged under 18 years) is left an interest in realty.

What is a Trust?

A property trust holds donated or ‘settled’ assets of any description, to be managed by Trustees on terms set out in the trust deed. The donor/settlor decides the terms and what assets are donated. The Trustees are the legal owners of the trust property but they are not beneficially entitled to it unless they are also beneficiaries. They will usually have a discretion – hence ‘Discretionary Trust’ – as to how they distribute the trust property to the beneficiaries.

What do Trusts do?

As far as the estate-planner is concerned, any one or all of the following:

Relieves the Donors of the burden of maintenance, repair, security and insurance of the trust property of whatever nature but especially realty (land and buildings) should the Donors at any time be unable or unwilling to manage those matters themselves. If a property is let or not occupied by the Donor – who could be in a care home – then the total management of the property will fall to the Trustees.

A Property trust avoids the expense and time of obtaining a Grant of Representation in respect of the trust assets on the death of the Donor, because at the time of his death he does not own them. Whether the Donor is alive or dead, the Trustees can still deal with the estate just the same, without any grant of representation.

Ensures that should the estate of a deceased not have sufficient funds to settle the cost of probate, funeral expenses or the debts of the estate, trust property will not be sold or charged if the Trustees wish to keep the property unencumbered or to keep it for the beneficiaries. Either the estate will be classed as ‘insolvent’ and the debts unpaid, or family could settle them.

They are not, however, obliged to do so. Many Testators deliberately run-down the value of their estates, but this does not necessarily mean that they leave nothing to their beneficiaries where a trust had been established years previously.

Permits Trustees some discretion in disposing of or dealing with trust assets so as to best accommodate beneficiaries’ respective interests, needs and requirements and to better account for their various circumstances prevailing at the material time and in the future. For example, a beneficiary may be or may become mentally unstable, a drug addict or alcoholic, could have serious debt issues or be going through a messy divorce. So, clearly, giving money or other assets to such a person would be a waste of that money.

Ensures that in the event of a Donor’s Will being lost, destroyed or invalid that trust property will devolve in accordance with trust terms. There are many well-documented incidents where wills ‘go missing’ because a first, second or even third spouse or other dependants will fare better under the intestacy rules (or maybe even under an old, but not destroyed, will). Or a will may genuinely just not be found.

Saving Your Home From Care Costs (Asset Trust)

Since the introduction of charges for care for the elderly there has been a large amount of irresponsible comment in the media and by vendors of financial schemes and products regarding the avoidance of such charges.

The harsh reality is that the government drafted the National Health Service and Community Care Act 1990 in the knowledge that attempts to circumvent it would be made – and guarded against them.

First and foremost, the local authority is empowered to disregard, without limit of time, any transaction that they consider as “self deprivation”.

Secondly, Any change that transfers the ownership of your home, robs you of your security and can result in disaster. Giving your home to a child, is often quoted as being the ideal solution, BUT –

a. Gifting the property, but continuing to live in it, is not a “true gift” in law unless you pay a full market rent.

b. From the date of the gift, it will not be the primary residence of the owner, and will therefore qualify for Capital Gains Tax on any increase in value.

c. If your child becomes involved in bankruptcy, your house will be one of their assets to be claimed in the legal proceedings

d. If your child dies before you, your house will be part of their estate and go to their beneficiaries.

e. If your relationship with your child breaks down, your ability ro remain in your house would be prejudiced.

f. Income Tax on the rental value of your house will be payable every year.

Clearly, these factors make gifting a very risky and expensive affair, particularly as only one in six of us actually go into care.

However there are steps that you can take, which are perfectly legal, and severely limit the amount that can be levied upon by the local authority. 

We adjust the ownership of the house to a Tenancy-in-Common, so that husband and wife own one-half each. Then each Will gives the deceased’s half of the house to a trust which permits lifetime occupation by the survivor.

This limits the assessable value to half of the house, less the minimum threshold. As an example, in the case of a house worth £100.000, the effect (in round figures) would be: Without ProvisionsWith

Provision

Property Value less threshold100.000

20,000

50.000

20,00

Maximum levy80,00030,000

In the example, this, perfectly legal and acceptable, procedure saves the eventual beneficiaries £50,000 and carries none of the risks associated with other schemes.

Your wills advisor will be happy to give a fuller explanation of these issues to you upon request.

 

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