Using Trusts in Wills

Using Trusts in Wills – to protect family homes and your children’s inheritance

As health and medical care improves, and people live longer, the financial implications of paying for care fees becomes an important issue for many families. Using trusts in wills is one way to help protect family homes from being used for care fees. A will trust is also a method of protecting the inheritance of a couple’s children, if one parent dies and the surviving spouse remarries.

Married couples and civil partners can set up a property will trust by dividing ownership of their home so that each person has a 50% share. They then become what is known as ‘tenants in common’.

Instead of leaving their 50% share to the other person in their will, they leave it to a trust which only comes into existence when the first partner dies.

Property will trusts and care fees

If a property will trust has been created, the surviving partner retains the right to live in the home. If they subsequently have to move into residential care, only their share can be assessed by the local authority. The other 50%, which passed to the trust when its owner died, is protected and cannot be used to pay for long term care.

Will trusts and tax

A will trust can also be used to protect the inheritance that children might expect to receive in the event that a surviving parent remarries without making a new will that includes specific provision for their children. The rules of inheritance could mean that the entire estate goes to the new spouse and any previous will, from when both parents were alive, is declared invalid. This scenario is described as ‘sideways disinheritance’.

This type of trust could again be a property will trust or a more flexible discretionary will trust. A discretionary will trust does use up some, or all, of the first partner’s inheritance tax nil-rate band and could also mean that trustees are liable for capital gains tax. If a couple leave everything to each other in a traditional will or a property will trust is used these tax liabilities do not arise.

Until 2007, nil-rate band discretionary will trusts were a common way of saving inheritance tax. A couple potentially liable could split their estate into halves, both below the nil-rate band. But currently, the ability to transfer unused inheritance tax allowance ended the need for this type of will trust for most couples.

How Else Solicitors can help

Else Solicitors has a specialist wills team, which is led by Kathryn Caple. This team offers a bespoke service including the drafting and reviewing of wills. We can provide advice on changing your will if your personal or business circumstances change. A properly structured will ensures that any payments from insurance policies go to the people you would want to benefit.

Speak to us for advice about whether setting up a will trust would be right for you and your family and to discuss inheritance tax and estate administration. You can call us on 01283 526200 or email us.

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