Many of us want to ensure that, when we die, our assets pass to our chosen family members. This can become complex in the case of blended families where there are children from a previous relationship, and the use of trusts in a Will can prove vital to ensure everyone is provided for. Even families with more straightforward situations can benefit from using trusts to protect assets from being depleted.
For example, the family home is often the most valuable asset and you may want to make sure that your partner can continue to live in the family home for their lifetime, but ultimately ensure that your share is passed to your children.
A simple way to achieve this is to include a trust in your Will for the benefit of your surviving partner for the rest of their life (often referred to as a life interest trust). Following your partner’s death, the capital assets held in the trust pass to your children under your Will, rather than having to rely on your partner to provide for them. The terms of the trust can be as flexible as you need. You could give your trustees the option of ending the trust before your partner’s death if he or she does not need the income or moves out of the property. Different tax consequences will arise depending on the actions of the trustees so specialist advice should be sought beforehand.
Provided you and your partner are legally married or in a civil partnership, under current law, there will be no inheritance tax liability following your death as the gift into trust should qualify for full spouse exemption. Instead, the trust will be subject to inheritance tax when your partner dies, which is the same as if you had given the property to them outright.
Inheritance tax allowances are transferable between spouses, meaning that your partner will be able to use your unused allowances in their estate instead. Again, specialist advice is required to ensure the allowances are apportioned correctly.
In some instances, a trust can be useful even where the family situation is more straightforward. For example, a life interest trust can offer protection against a surviving partner’s contributions to future care home fees. Following your death, the assets held in the trust do not form part of your partner’s estate and are, therefore, disregarded for any care home fee assessment, even if the survivor is able to benefit from the trust.
If you are interested in reviewing your Will to ensure the next generation is protected and provided for then please feel free to get in touch for an initial review.