Will trusts can be used to ensure your estate is distributed in accordance with your wishes – especially if you have children from a previous marriage and pass away before your current spouse. Here, solicitor Helen Law explains how they work.
Why Will trusts are important to ordinary people
Many people believe creating a trust in a Will is something only wealthy people do, but this is far from the truth.
Will trusts are a highly effective way for ordinary people to ensure their assets are distributed exactly as they wish after they have passed away.
Taking care of your children when you are gone
By using Will trusts you can avoid a ‘sideways disinheritance’, which can happen if your surviving spouse remarries and either doesn’t specifically provide for your own children in their new Will or dies without making a new will, meaning all or the bulk of their estate passes on to their new spouse instead of your children.
A Will trust stops this happening because it is possible to set out precisely who your beneficiaries will be on the surviving spouse’s death.
How Will trusts work
The process means the estate of the first spouse to die is held in a trust. The surviving spouse can then benefit during his or her lifetime, but on the specific condition when he or she dies, the assets revert to the beneficiaries named in the Will of the spouse who died first.
A Will trust is set up on the basis that each partner owns 50 per cent of the assets, often the family home. However, instead of leaving their share of the property to each other, they leave it to a trust which comes into force on the death of the first spouse.
This means the surviving partner has the right to continue living in the home. Also, if he or she has to move into residential long term care, only his or her share of the house will be assessed for funding eligibility by the local authority.
Providing for loved ones with special requirements
Another effective use for a Will trust is where a loved one has health or educational needs. A trust looks after such a beneficiary as trustees would be appointed to manage the individual’s inheritance.
Not only does the trust provide flexibility where a beneficiary has particular needs, but funds held in certain trusts are not regarded as the beneficiaries’ capital when establishing whether or not they are entitled to means-tested benefits such as council tax benefit, housing benefit and employment support allowance.
A possible inheritance tax saving scheme
Trusts can also be used by non-married couples to save on inheritance tax, which can make a significant dent in the money you leave in your Will.
While couples who aren’t married do not benefit from the transferable nil rate tax band, using a trust can prevent the first to die’s estate being aggregated with the survivor’s for tax purposes when the survivor dies.
For further advice on Will trusts, call Helen Law on 01254 884253 or email her at email@example.com