MG Legal, Leading Wills, Trusts and Probate Solicitors. The team that put you first. Contact us to speak to a solicitor today: 01772 783314 or email at: email@example.com
Expert Wills & Trusts Solicitors Near You.
At MG Legal, we know that our wills and probate clients like to know where their hard-earned money will end up, after they have died. That’s why we’ve seen a steady increase of the number of people seeking the expert advice of our solicitors for wills over the last year.
However, for some people, it’s not as simple as gifting money to a person after their death. In fact, they need to be able to let an individual have, or continue to have, benefit from an asset, whilst ultimately ensuring that it passes to a certain person.
Read on to learn more about your options when it comes to trusts in your will.
What is an Estate?
A person’s Estate is made up of everything that they own at the date of their death, less any liabilities or debts that need to be paid out of the assets.
For example, Mr A owns a property worth £200,000, has savings and cash worth £35,000, and has Premium Bonds of £15,000. His total Estate is therefore worth £250,000. In terms of debts and liabilities, Mr A has a credit card worth £5,000 and his funeral costs come to £3,000. His final Estate is therefore worth £242,000.
If you are looking to seek legal advice regarding your estate and trusts, or acting as an executor of an estate including trusts, get in touch with our specialist wills, trusts, and probate solicitors online today and speak to a solicitor for trusts within one working hour about how we can help you today.
Will a trust effect Inheritance Tax?
Most types of trusts will have Inheritance (and other types of) tax implications. However, a Bereaved Minor Trust or an 18 – 25 Trust differs. Even if the value of the trust is over the nil rate band (currently set at £325,000 as of August 2020), there will be no assessment for inheritance tax when a distribution if made at age 18, or at ten yearly intervals during the period of the trust.
In an 18 – 25 trust, if a child over the age of 18 receives a payment from the trust, there may be a charge to inheritance tax if the trust fund exceeds any nil rate band. The charge will depend on how long after the age of 18 any payment is made.
For example, if a child receives inheritance at 21 years old, the tax rate would be 1.8%. At the age of 25, it would be 4.2%.
For more advice on whether inheritance tax is payable on payments made under a Bereaved Minor Trust or an 18 – 25 Trust, contact HM Revenue and Customs for advice. Or, to seek expert legal advice from a solicitor for wills and trusts, contact our team online here and speak to a solicitor within one working hour about our expert, fixed-fee legal services.
Immediate Post-Death Interest Trust Provisions
One way to ensure that assets are held for a certain person, whilst another person continues to be able to enjoy them, would be a trust in your Will. A common way of doing this is through an Immediate Post-Death Interest Trust (“IPDI”).
Frequently used by spouses, each spouse puts their respective share of their property into trust on their death. The property is generally passed to children or grandchildren, and the surviving spouse has the option to remain living in the property for their lifetime (or any other property that the spouses own and which constitutes their principal place of residence on the first death). In addition, the surviving spouse has a right to the income generated by the deceased spouse’s share of the capital.
Example – Mr and Mrs Smith:
Mr and Mrs Smith (“S”) own 123 Green Street as Tenants in Common in equal shares. It’s important that the property is owned in this way so that their respective shares of the property are capable of being left under their Wills.
S decide to discuss including IPDI provisions in their Wills. Our expert local solicitors for Wills explain the full provisions and the implications of these on Inheritance Tax to S, and they agree that they wish to proceed. Accordingly, their Wills are drafted, and the clients sign them. The clients go on to live a long, happy life and some years later, after several house moves, Mr S dies. Mrs S now needs to implement the trust, along with the other trustees, their children.
Essentially for Mrs S, nothing has really changed. She can continue to live in the property that is the subject of the trust for her lifetime. If she wants to sell up and move house, she can. Any replacement property would be purchased in the joint names of Mrs S (50% ownership) and Mrs S and the children (the trustees) (50% to be held on the terms of the Will of the first to die).
Mrs S decides to downsize, and is left with £50,000 net proceeds of sale when she buys her new house. Half of this belongs to Mrs S, as her 50% share, and the other £25,000 is held on Trust for Mrs S’s children, the beneficiaries under the IPDI provisions. This is held for Mrs S’s lifetime, and could usually be invested or held in savings. Any income made from this money, for example if it’s invested, would belong to Mrs S, and could be used to fund her lifestyle or, if the circumstances arose, to pay towards her care.
When Mrs S dies, her share of the property, or the net proceeds of sale, would be passed under the terms of her Will. Mr S’s share of the property would pass to his children, in line with the provisions of the IPDI clauses in his Will.
If Mrs S has to go into care during her lifetime, Mr S’s share of the property value would not be taken into account in any Local Authority Financial assessment.
As Mr and Mrs S made mirror Wills in this scenario, so the terms included in their Wills were reflective of one another, if Mrs S had died first, the effect of the clause would have been the same.
Benefits of an IPDI Trust
The benefits of including this type of trust provision in your Will, as well as the care benefits listed above, also mean that if Mrs S remarried, the share of the property held in trust would not be included in any divorce agreement, and would not pass to the new spouse. In addition, if Mrs S had a disagreement with her children and decided to change her Will to not include them, they would still be guaranteed the share of the property left to them by their father.
Things to consider
As you would when making a more-straightforward Will (i.e. one without any trust provisions), you would need to consider the Inheritance Tax implications of including IPDI provisions in your Wills. To discuss this further, contact MG Legal’s expert local solicitors for Wills to arrange a consultation. We will be able to discuss the benefit of the provisions, what these entail for the surviving spouse, and any Inheritance Tax implications.
Costs of including IPDI provisions in your Will
The costs of the provisions required can depend on what exact provisions will be included in your Wills. However, generally a married couple could expect to pay an additional £250.00 plus VAT on top of the costs of straight-forward mirror Wills. You can find out the cost of mirror Wills on our fixed-fee page, here.
In addition, when our clients instruct us to include IPDI provisions in their Wills, we need to be able to check how their property is owned. This usually costs £3.00 to obtain these documents from the Land Registry, unless the property is unregistered, in which case we will need sight of the original Deeds.
If the property is owned as Tenants in Common already, so each spouse owns a separate 50% share (or even, in some cases, different shares), there will be no additional work required.
However, if your property is currently owned as joint tenants (so on the death of one survivor, the property passes under the survivorship rule to the surviving owner), the tenancy will need to be severed to change it to the ownership set out above, Tenants in Common.
Our charges for changing the way a property is owned are usually in the region of £75.00 plus VAT, plus the £3.00 Land Registry fee to check ownership.
What are Discretionary Trusts?
With these types of Trust provisions, you leave your Estate, or part of it, in Trust, deciding who the potential beneficiaries will be when you die. This could include those who are not yet born, for example, grandchildren or great-grandchildren who you think may come along, but haven’t yet.
With this type of Trust, in your Will you would appoint Trustees, who would be responsible for managing and implementing the terms of the Trust. The Trustees would be able to use their discretion to decide which of the potential Beneficiaries, or the people who eventually become Beneficiaries, receive funds or assets from the Trust. Not all of the potential Beneficiaries will ever receive anything, as the decision is completely made at the discretion of the Trustees.
We would usually prepare a letter of wishes, which stipulates how you would like the Trustees to apply the funds of the Trust. To learn more about the services of our specialist solicitors for Wills and Trusts, and speak to us about how we can helpe to ensure that your wishes are met, contact us online here and speak to a solicitor for wills within one working hour.
Can I setup a trust for my children?
Our local solicitor for trusts know all too well that when making a Will it can be hard to think of what would happen if you died whilst your children or step-children are still minors; no one wants to think of leaving their children when they are still so young. However, it can happen, and therefore our expert Will drafters would also discuss with you when a child can legally inherit, and what options you have to protect their share of your Estate.
Below our expert solicitor for trusts have explained what an Estate is, when a minor can inherit from an Estate, and what this means for their inheritance.
How can I leave my Estate to my children?
If you want to make a gift to your children, or they are to be named as the beneficiaries of your whole Estate, you may decide to simply leave them everything, without specifying an age over 18.
If this is the case, it will depend on how old your children are when you die, as to what happens to your Estate.
If your children are over the age of 18, you may simply gift your Estate to them.
This is when a share of an Estate is left to any beneficiary, who is a minor at the date of death of the person leaving the share, and no specific age for the children to inherit is included in the Will. The money will be held by the Trustees for the child’s minority and, once they have turned 18, the money will be theirs to look after themselves, and any trusts come to an end. With this type of trust, the share of the Estate always belongs to the children, however it is held on their behalf.
Bereaved Minor Trusts-
Where a Will leaves an Estate to children, on the condition that they attain the age of 18, this will usually create a “Bereaved Minor Trust”. This type of trust is also created if a child inherits under the Rules of Intestacy.
For the purposes of this type of trust, the child must be legally your own child or a stepchild, and would not include grandchildren, nephews, nieces or other minors who are to benefit under your Will.
18 to 25 Trusts-
If you leave a gift or a share of your Estate to a minor upon them reaching a certain age, up to the age of 25, this can create an “18 – 25” trust. Again, only parents can create this type of trust for their own children or stepchildren. This type of trust means that the trustees are not obligated to pay the money to the children until they attain the specified age. In this case, the inheritance would not belong to the named children until they are the required age.
There are, of course, other trust provisions or methods of leaving your Estate to your children however, for the purposes of this blog, our expert Will drafters are only discussing the above trusts.
How old does a person need to be to receive inheritance?
Like a lot of other things in life, a child is classed as a minor until they attain the age of 18, and therefore, they cannot generally receive any inheritance until this age. This age limit is referred to under the Trustee Act 1925, and can be found in the Family Law Reform Act 1969.
There are some exceptions to this rule, for example, if a gift is left to a child upon them turning 16, however, if you want to make this kind of gift in your Will, you should always seek legal advice from an expert Will drafter to ensure that the gift is worded in the correct way. If it is not, it could create issues after you have died, with the gift.
Benefits of a Discretionary Trust:
One reason that a Discretionary Trust may be an option in your Will, is if you let our solicitor for wills know that you intend to see how events in the future pan out before deciding who you would want to receive what, so you want the flexibility to change your letter of wishes in the future. Although, this would always be on the understanding that the Trustees do not have to follow your wishes, if they did not want to. Alternatively, you may feel that one of your loved ones is not good at managing money, for example, if they have a problem with alcohol or drugs, and you may therefore decide that you do not wish to leave them a large amount of money to ‘blow’ in one go. Therefore, the Trustees would be able to use their discretion to decide when or if that person received any money.
Another use for this type of Discretionary Trust would be if the person who you wish to leave money to are in receipt of means-tested benefits or cannot manage their own affairs due to being a minor or mentally incapable. This type of Discretionary Trust allows the Trustees to manage the money on behalf of the potential Beneficiaries. To speak to a solicitor for wills about your options, and seek expert legal advice today, simply get in touch with us online here and speak to a solicitor within one working hour about how we can help.
Example of a Discretionary Trust:
Mr Smith, a farmer, wishes to allow his three children to receive his farm and business when he dies. However, he only wants the child or children who end up following the same career path to receive this. Unfortunately, his children are all very young and he is concerned that leaving it to all three of them equally could lead to disagreement in the future.
He approaches his local solicitors for Wills to discuss the issue, and they propose placing the farm and business into a discretionary trust. Mr Smith should prepare, or instruct his solicitor for wills to prepare on his behalf, a letter of wishes, outlining what he would like the Trustees to do with the assets. He can then update this letter throughout his life, as the circumstances change.
Instructing MG Legal to Draft Wills including IPDI Provisions:
Our team of solicitors for wills are here to help, so if you wish to make a Will, we can discuss IPDI provisions with you during your initial appointment, without any additional costs. That way, you can decide whether you wish to proceed with a straight forward Will, or whether IPDI provisions would be the better option for you.
If you wish to simply discuss the effects of an IPDI Will before you proceed with making a Will, we can offer an initial consultation for a fixed fee of £75.00 plus VAT. We can provide you with a write up of the consultation for a small additional fee. This way, you can consider your options before discussing a Will in any detail.
Contact us online here to learn more about how our solicitors for wills can help you today.
How long does the Trust last?
Usually the Trust will be established for 125 years from the date of the Testator’s death, unless otherwise stipulated in the provisions.
Things to consider
Like with any type of Trust provision included in a Will, there are things that you would need to consider before deciding whether or not these provisions should be included in your final Will. There may be Inheritance Tax implications when a Trust is formed after your death. To discuss these implications in relation to your circumstances, contact our expert local solicitors for Wills online, here, or email firstname.lastname@example.org for a call back within one working hour.