Wills, Probate, Tax & Trusts
Care fees and the future needs of your children: Do you Trust what will happen to your assets?July 19, 2017
Modern life can lead to a whole range of reasons why clients come to see me and my team for advice about how they may go about protecting their money, property and investments for their loved ones.
Clients may require advice regarding long-term care planning; protection of vulnerable and/or disabled beneficiaries; and balancing the needs of children from former relationships with those of their current spouse or partner.
We frequently find ourselves advising clients to set up trusts (whether during their lifetime or via their Wills) to protect their assets and to provide for loved ones
Many clients assume that trusts aren’t for them and are only for the rich and famous or for those wishing to avoid tax. This isn’t necessarily true and, indeed, when the concept of a trust first appeared it was to designed to shield and preserve assets rather than to avoid tax.
There are many types of trust and the type of trust which a client chooses depends on their needs. Certain trusts have specific tax advantages and others do not. Most trusts will help preserve assets for future generations be it from care fees, divorce or third parties who may seek to make claims on a person’s estate.
Careful consideration needs to be given to a number of matters when setting up a trust: Why is the trust needed? Who is it to protect and what asset or assets are to be put into trust? Is the trust a lifetime or a Will trust? Who will be the trustees?
Care fees have recently been in the news and many people have concerns about having to sell their home in order to pay for care. A trust can be very useful in helping to protect assets in these circumstances. In such circumstances it is common for a spouse to leave their estate to each other “in trust” rather than outright to each other. The surviving spouse will have the benefit of the assets held in trust and will be able to use them or receive an income from them for the rest of their life. Typically, a trust will “own” half of the family home but in practice this will make little or no difference to the surviving spouse.
Such trust wouldn’t just protect the estate of the first spouse to die from care fees, but it would also help preserve assets in the event that the survivor remarried or experienced financial difficulties. In the most extreme circumstances the trust would also help protect against financial abuse in the event that the surviving spouse lost capacity to manage their affairs and someone was trying to take advantage of them financially.
The type of trust will often be dictated by the important question of how one wants the trust to work in order to achieve its aims and purpose? Some trusts may only be required to protect one person for the remainder of their lifetime before the assets are then passed onto the ultimate beneficiaries – so a ‘life-interest’ trust may only be required. Other trusts may be wanted to benefit a class or a number of named beneficiaries who indeed may have varying needs and different personal circumstances – so in this situation a ‘discretionary trust’ may be more appropriate. This latter type of trust will leave a lot of decision-making in the hands of the trustees who will have an absolute discretion on how to operate the trust; for example, how and when to advance capital monies and/or income from the trust and to whom. A supporting ‘letter of wishes’ is therefore usually also written to the trustees as a guide for them.
Another important factor found to influence a person’s decision about putting a protective trust in place is the initial and ongoing administrative burden of maintaining the trust – and indeed the cost of this. The main aspects determining this will be the type of trust and what the trust assets are? A life-interest trust containing simply a share of a property - in which a surviving spouse is living - will involve minimal work for the trustees; this is in contrast to a full discretionary trust containing property and investments and/or a share portfolio.
This can be a complex area of law and I would recommend that you speak to an expert if you wish to discuss protecting your assets. We can help you understand your current position, and offer you tailored and practical advice for your circumstances. This may also involve writing a new Will or reviewing any existing Will you have in place.
For more information on trusts, or any private client issues, feel free to contact our Wills, Probate, Tax and Trusts team.