Why Plan?
There are many threats to personal wealth and the family home. Complicated or broken family relationships and ill health can create the biggest challenge; not facing up to them and dealing now with the ultimate difficulties they could cause, will only make the outcome worse. By addressing them now, we put ourselves in control of how our wealth is ultimately distributed, giving ourselves the peace of mind which comes with knowing that we have done our best for those we care for most.
We should all be aware of the threats to our wealth – ‘we don’t know what we don’t know’ – and too often they catch out those of us who have not planned for the expected knocks of life, let alone the unexpected ones, which can happen at any age.
We will highlight these threats, clarify your position in relation to them and help you plan ahead to preserve your wealth, the value of your home and safeguard your wishes for the future.
Using a Trust to prevent Sideways Disinheritance
Should a surviving spouse remarry following the death of their husband or wife, any assets that were owned jointly, or were inherited by the survivor would typically be shared with their new partner.
The inheritance intended for the beneficiaries of the original married couple would therefore be diluted, especially if the new partner has his or her own children. Original beneficiaries can be disinherited completely if the new partner outlives the original spouse.
Placing assets in Trust would prevent this, whereas a Simple Will would not.
Assets left to a beneficiary via a Will are highly likely to form part of the financial settlement with their husband or wife if they were to become divorced. In fact, even whilst you are still living, the inheritance a beneficiary is to receive in the future can be taken into consideration and a portion handed over when it is received.
Placing assets into Trust means that only those named as beneficiaries have any rights or access to those assets.
If, for example, you left assets via a Will to a married son who had children and the son were to pass away whilst your grandchildren were still young, your son’s inheritance would typically pass to your daughter-in-law.
If the daughter-in-law were to remarry, those same inherited assets would normally be shared with her new partner. The grandchildren’s inheritance would be diluted further if the new partner had their own children. If the daughter-in-law did not outlive her new husband, the grandchildren could be completely disinherited.
If assets were placed into a Trust, you could ensure that the daughter-in-law had access to funds in order to look after the grandchildren until they became adults and prevent any new partners from having any access or rights to the inheritance.
If you leave your assets to a beneficiary using just a Will, upon death the ownership of those assets transfers to whomever you have left them to. If the beneficiary is suffering from, or has suffered financial difficulty, their creditors could seize their inheritance.
As the Trust survives after your death, your assets remain in the Trust and are therefore beyond the reach of the beneficiary’s creditors but the beneficiary can still receive the benefit of their inheritance.
Reducing the adverse effects of inheritance
If assets are inherited via a Will, they are classed as the beneficiaries’ capital. This will have a dramatic effect on any means tested state benefits and could ultimately lead to the complete loss of the benefits that your heirs may rely on.
If the capital value of the assets remains within a Trust, the beneficiary could avoid the loss of state benefits but still receive the benefit of their intended inheritance.
Inheriting at the right time
Sometimes, it isn’t always best for a beneficiary to receive their inheritance in one go. If they are young, a vulnerable adult or struggling with drug, alcohol or gambling addictions for example, it might be preferable for their inheritance to be released in stages and under the supervision of a trusted friend, family member or professional.
A Trust provides the flexibility to accommodate this arrangement.
Preventing a successful challenge
Any person whom you have excluded from your Will who would have inherited had you not made one is able to make a challenge. A challenge can also be made by anyone claiming to have evidence that you made him or her a promise.
There are several legal bases for a challenge, but one of the most common is made under the ‘Provision for Family and Dependents Act 1975’. This Act enables a person who has either been disinherited entirely or left only ‘unreasonable’ provision, to bring a claim against a person’s estate for greater financial provision. They are often successful.
If assets are in Trust, there is no movement of ownership after you have passed on and therefore only those named as beneficiaries have any rights or access.
A Trust is without doubt the most robust method of preventing a successful challenge.
How Trusts can prevent generational Inheritance Tax and the burden placed on your heirs.
If the value of your estate exceeds the Inheritance Tax threshold, HMRC will expect that any tax due is paid before they will allow the Grant of Probate. In other words, the tax has to be paid before your beneficiaries receive their inheritance.
If liquid funds are not available and the Inheritance Liability is not paid within 6 months of the deceased’s death, interest will be charged.
HMRC will often allow the tax liability to be paid in instalments over a period of time (often 10 years). However, that agreement has to be maintained regardless of whether funds have been released from assets that need to be sold.
Assets placed into Trust won’t necessarily avoid Inheritance Tax but, they are not subject to Probate and the Trust beneficiaries can access them immediately.
It is not unusual for assets to create an Inheritance Tax liability more than once.
Assets that exceed the Inheritance Tax threshold will be subject to taxation on the death of the owner. Once the assets have been inherited, they will form part of the beneficiary’s estate. If the value of their own estate, or with the addition of their inheritance, exceeds the Inheritance Tax threshold, the inherited wealth will be subject to Inheritance Tax again along with their own assets once they have passed on.
Leaving assets to someone via a Trust can prevent those assets ever forming part of the beneficiary’s estate and therefore avoiding a next generation Inheritance Tax.
Why can you trust Westminster Wealth Preservation?
All Trust Deeds that we arrange are drafted by named Barristers from established and respected Chambers and are regulated by the Bar Standards Board.