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Wills & Probate

Trusts

Trusts are legal vehicles whereby trustees hold the legal title to assets on behalf of the beneficiaries. Trustees have strict duties in law, to carry out the terms of the trust. Trusts can be useful if you do not want an asset to pass to someone outright and in some cases can prevent an ex spouse from claiming an interest in the trust assets on a divorce. Trusts can be created in your lifetime or under your Will.

Since the tax treatment of trusts was altered in the Finance Act 2006, there are effectively two types of trust, a life interest trust and a discretionary trust. Life interest trusts are used if you want to give someone (the Life Tenant) the right to the income of an asset during their lifetime but you want the underlying capital to pass to another person after the Life Tenant’s death. Life interest trusts are often found in Wills and can be helpful if you have remarried and want to ensure that your new spouse has the right to use assets after your death but ultimately you wish those assets to pass to your children of your first marriage on your new spouse’s death. Life interest Wills can also be used in nursing home fee planning to minimise the value of your home in your surviving partner’s estate.

Under a discretionary trust, no beneficiary has the right to the income or the capital which are paid to the beneficiaries at the trustees’ discretion. With discretionary trusts, the trust fund does not form part of any beneficiary’s estate when they die for inheritance tax purposes, unless the creator of the trust is a beneficiary of the trust.

If you have death in service benefits payable in connection with your pension, or you have life assurance or your employer has taken out death in service life assurance for you as part of your benefits package, it is worth checking that it has been written into trust. This will ensure that the death in service benefit or life assurance policy does not form part of your estate on your death and inflate your estate for inheritance tax purposes or fall into a beneficiary’s estate and suffer inheritance tax at 40% on their death. Provided you write the death in service benefits or life assurance in trust when you are in good health, there will be minimum inheritance tax consequences. Our private client team can prepare the trust deed for you or help you complete the trust documentation provided to you by your pension provider or life assurance company to ensure that the insurance policy or other death benefit are written in trust.

Our private client team can also advise you on altering and terminating trusts and can advise trustees on the numerous duties they owe their beneficiaries.

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wills@chadlaw.co.uk
0800 015 0340

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