What is a Will Trust?
Why may you need a Trust in your Will?
There are three basic reasons –
The family home is usually the most valuable asset a person has and the most vulnerable. The Property Trust is the most popular trust written into a Will as it allows a person on their death to leave their half of the house in trust for their children/beneficiaries whilst giving the surviving spouse the right to live in the property for the rest of their lives. This reduces the potential impact of residential care fees on the property value in the event of the surviving partner having to go into long term care after they have gone. Should the surviving partner re-marry or cohabit as seven out of ten people do, the new partner has no claim on the half of the house that is in trust. This gives peace of mind to each partner that their share of the house is secure for their children/beneficiaries.
Discretionary Trust for the Disabled
Parents with a disabled child will be concerned with how their child will be looked after in the future. Often their child’s disability means they will not be able to make sensible financial decisions when on their own. Also, parents are concerned that any gift left to such child in a Will could affect their entitlement to local authority funding and care. A discretionary trust for the disabled allows money to be set aside for the child without forming part of their estate thus not interfering with any state benefit. The trust leaves the fund to the discretion of the trustees (usually family members) to distribute payments to enhance the quality of life for such child. The child is not the sole beneficiary of the trust but the principal beneficiary.
Inheritance Tax Planning Trust
A person is allowed on their death to pass £325,000 (2011/2012) called the Nil Rate Band, free of tax to their beneficiaries. Anything over and above that is taxed at 40%. In 2007 the government allowed a person to transfer their Nil Rate Band to their surviving spouse to be passed on to the children/beneficiaries on second death. This effectively allows a couple to enjoy the benefit of two Nil Rate Bands eliminating the need for married couples to have Inheritance Tax Planning Trust Wills.
However, for unmarried couples there is no spouse exemption for inheritance tax on first death so any amount transferred that is over the current Nil Rate Band will be taxed at 40%. If their estate is worth that more than £325,000 and they simply make standard Wills, inheritance tax eventually will become an issue. With proper inheritance tax saving Wills, both Nil Rate Bands can be protected for the children/beneficiaries.