The merits of trusts created during your lifetime or by Will by estate planning expert Robert Cartmell.
I, Robert Cartmell, having worked in ‘estate planning’ areas of work for over 25 years and a common question that arises with families is whether a Living Trust is a better approach than a Will-Trust.
What is a ‘Living Trust’?
In this context, we mean a trust created by a person during their lifetime and into which assets are placed. Commonly, this will be a share of a property (owned jointly with a spouse) and usually such trusts are limited to £325,000 in value, being the basic IHT threshold.
It is simply another tool in Estate Planning tool used to transfer property and assets to family or other persons.
Couples may create lifetime property trusts with the hope of providing some protection for their children to inherit the property free from outside claim.
By creating a lifetime trust, the Trust will be deemed ‘active’ straight away and it will need to be registered with HMRC’s Trust Registration Service.
In general, it is fair to say that any asset that can pass under a will can also pass under a living trust.
What is a ‘Will Trust’?
A Will Trust is a Trust created by a Will (or which comes into effect on death via a Will). Although the Will is set up during lifetime, the Trust is not properly in existence until following death.
The structure of a Will-Trust usually comprises two elements:
- A discretionary trust; and/or
- An interest in possession (life interest) trust.
As it relates to a Will, the documents are created and signed off – but all of the work of transferring the assets accordingly to your wishes is put off until you die. Property and assets are then transferred to the beneficiaries through a legal process called ‘probate’ following your death.
(Note: there is a distinction between a ‘Will’ and a ‘Living Will’. While a Will passes your property, money and possessions to beneficiaries, a ‘Living Will’ provides instructions for medical treatment if you become unable to communicate your wishes. Lasting Powers of Attorney are often the more favoured document governing your medical and health treatment needs, rather than Living Wills. Whilst a Will and a Living Will are both legal documents, living wills focus on your care rather than your finances and possessions. You can have both a last will and testament and a living will — and in many cases, both are important).
Is there a common purpose of a Will Trust and a Living Trust?
Yes. The purpose of either is to protect estate so that it can pass in the most effective manner to the chosen beneficiaries.
What is therefore advisable?
Every case will have different circumstances and in some cases a set of Will-Trusts might be all that is needed and in other cases a set of Living Trusts might in addition (or as an alternative) may be preferable.
Examining the pros of a Will Trust and a Living Trust respectively, can help us determine how to apply such knowledge to your own circumstances.
Pros of a “Will-Trust”
Affordability.
Will-Trusts are only activated on your death. Therefore, once they are drafted and signed off, there is no trust-administration cost before your death. Likewise, there is nothing for your Trustees to do or undertaken during your lifetime.
No need to transfer assets while you’re alive.
Likewise, there is no reduction in the scope of your ownership of assets during your lifetime. There are no asset transfers into Trust.
Pros of a Living Trust
Possible avoidance of Probate requirement:
If the assets are placed into a Trust structure during your lifetime, the ownership of the assets is with the Trust, not you. Of course, you will specify how family will utilise the Trust (possibly to include rights to yourself during your lifetime) but the ownership is with a 3rd party, being a Trust.
The Trustees of the Living Trust can include yourself (as you are alive). So, you can have the say in how the assets are administered during your lifetime.
Privacy:
Not everyone wishes for their estate to go through probate. It is a court proceeding and probates and wills are public documents. Many people do not realise that their Will is the subject of public record. However, if all of their estate is in a Living Trust, the terms of the Trust are not fully public record. There is now a UK requirement to register active Trusts but the information provided to HMRC’s Trust Registration Service is only in basic terms (currently).
Would both a Will-Trust and a Living Trust be possible?
In many cases, this is the optimum advice, ie to
– a) have a Living Trust to park as much as you can within secure protected family succession arrangements; and
– b) to have a Will-Trust governing all of your remaining assets on death.
Estate Planning
It is our best advice that anyone over the age of majority (18 years of age) considers estate planning. Everybody should have a plan.
As we know, there is no certainty of longevity with living – having a Will in the optimum protected format is always advisable.
The merits of creating a Living Trust will often require more detailed involvement and understanding of your asset situation and family circumstances.
Please visit our estate planning website www.protrustestateplanning.co.uk for more information and do contact us for an initial meeting or discussion.