Life Interest Trusts – Solicitors in Gosforth Serving Newcastle upon Tyne, the North East and Nationally
A trust is a way of assets (such as money, investments, property) being managed on behalf of other people, for example if someone is too young to or if someone is incapable of managing the assets for themselves
This can be a very complex issue and it is therefore vital that you obtain professional advice as soon as you start to think about them to ensure all factors are taken into consideration before you create what are often irrevocable situations which can have significant tax consequences.
At Birch & Co we have Specialist Solicitors who understand how difficult talking about such matters can be. As a result you can be sure we will deal with you in a sensitive and friendly manner, all the while ensuring a professional and efficient service is given.
Simply call us on 0191 284 5030 or complete our FREE ONLINE ENQUIRY now to discover the price estimate for your circumstances
Our specialist private client solicitor Rebecca Griffiths is a member of the Society of Estate
Practitioners, a worldwide professional association for those advising families across generations.
We are based in Gosforth with parking facilities as well as easy access to the Metro at Regent Centre and a bus stop outside the office. We strongly recommend that you contact us before you start the estate administration so that we can help guide you further. We can save you a lot of money and stress.
We have a 5 star rating on Google for the quality of our service and 99% of our clients are completely satisfied and would recommend Birch & Co to others. Please read some of our current clients’ Testimonials below of what they think of us. We hope that you feel the same way once we have looked after you.
Definitions
Settlor the person who creates a trust
This is usually done within a Trust Deed / Declaration of Trust, if created during your lifetime and to take immediate effect. If it is take effect only after your death, it would be contained within your will
Trustee(s) the person(s) appointed by the Settlor to manage the trust
The Trustees are registered as the legal owners of the trust asset(s) but they are bound to deal with the asset(s) only in accordance with the terms of the Trust Deed / Declaration of Trust or will
Beneficiary the person to benefit from the trust
This might be an individual or a group of people; they can be entitled to just the income of the trust, the capital or both
Lifetime Trusts
These would usually be created in order to set aside a sum for say a minor grandchild, to be paid out on their 25th birthday. They cannot however be considered as a means to prevent an estate from being liable to inheritance tax or care home fees. Historically, some trusts were billed as just that – they were given positive names like Asset / Property Protection or Wealth Preservation Trusts – however they are unlikely to achieve the intended aim.
Creating a trust is akin to making a gift – please therefore see our page about Gifts, and in particular inheritance tax & reservation of benefit and care home fees & deliberate deprivation.
Furthermore rather than it be considered a PET (potentially exempt transfer), the creation of a trust is usually an immediately chargeable transfer which means the value of the assets being transferred can be liable to inheritance tax at the lifetime rate of 20%.
Will Trusts
Wills are documents within which one records wishes for how their estate is to be dealt with following their death. This usually involves an unconditional gift to a named beneficiary who will receive the gift as soon as possible after the estate administration has completed.
However, it is not always intended for the gift to be handed over immediately, if for example the recipient is unable to manage investments themselves, whether because they are under the age of 18 years old or they lack mental capacity. Furthermore, you may consider 18 is too young for an inheritance to be handed over or you simply want someone more responsible to look after the funds you otherwise want someone to benefit from.
It is usual for Executors to be Trustees also, albeit this will be a role they will take on only once the estate administration concludes. You can however appoint whoever you want.
You can also nominate as many people as you want.
Life Interest Trust
Instead of leaving an asset as an outright gift to a beneficiary so that it becomes theirs to do what they want with, a life interest trust gives the beneficiary the ability to enjoy the trust asset / fund during their lifetime but not own actually own it. The beneficiary of these sorts of trusts is called a “life tenant” and the ultimate beneficiaries are called the “remaindermen”.
If the trust is in relation to a property, the life tenant will usually have the right to live there without having to pay rent or share it with anyone else.
If the trust is in relation to cash or investments, the life tenant is usually entitled to receive any income generated.
As the life tenant does not own the trust asset(s) / fund, the property and / or the cash capital DO NOT form part of their estate for distribution in accordance with their Will.
Instead, following the death of the life tenant, the trustees then hold the trust fund on behalf of remaindermen.
An advantage of this form of trust is that you can be sure your ultimate beneficiaries will receive something from your estate, given that if you make simple mirror wills as a couple, the survivor might make later changes to who is their the chosen beneficiaries.
Alternatively, they may remarry, which would automatically revoke their will, or their finances might be such that their estate is depleted so there is nothing to pass to the ultimate beneficiaries, such would be the case if for example bankruptcy proceedings were commenced against them or they were assessed as needing to fund their own care home fees.
Discretionary Trusts
Sometimes you may not be sure of the terms you want to include in your will. A discretionary trust enables you to appoint Trustees to whom you give discretion as to who inherits from the trust fund.
Such trusts therefore provide flexibility but, in light of this, you should choose your Trustees very carefully. We encourage clients to leave a Letter of Wishes to accompany their will, within which they can record their thoughts about how distribution is to be made, but this cannot be considered binding on the Trustees and is merely guidance.
While the will may in time become a public document, the Letter of Wishes would not.
Nil Rate Band Discretionary Trusts
Since 1974, the first of a married couple to die has generally been able to leave their entire estate to their spouse without having to pay inheritance tax. The knock-on effect was that the deceased’s Nil Rate Band (NRB) allowance was unused. As only one allowance applied to the now bigger estate of the second spouse, the effect was considered to be a wasting the first spouse’s allowance.
This is why a significant majority of wills used to contain a Nil Rate Band Discretionary Trust (NRBDT), which ensured that up to the value set by the NRB a person’s estate was paid into the trust. Those funds could then be used at the discretion of the trustees for the benefit of named beneficiaries (which would generally include a spouse) without increasing the surviving spouse’s own estate. In effect, the NRBDT banked the NRB, with the potential to make huge inheritance tax savings.
Snce 2008, it has been possible to transfer the percentage of a predeceasing spouse’s or civil partner’s unused NRB to the survivor of the marriage / partnership. If, for example, a husband dies and passes all assets to his wife, the NRB of the wife would be doubled when she passes away. This effectively removes the need for “banking” the NRB through a discretionary trust.
Time and money go into the administration of an NRBDT and so it might be considered beneficial to remove the provision from existing wills.
The new RNRB means that, where a residential property is involved, the inclusion of an NRBDT can actually be detrimental in tax terms. The RNRB gives an additional tax-free allowance to estates where a residential property is being passed to descendents. However, where a NRBDT features in a will, the extra RNRB allowance is lost given that there is no outright gift of the residence to descendants, rather any such gift is made at the discretion of the Trustee(s).
“I felt at ease talking to Rebecca – she is very friendly”