Why Use a Trust as Well as a Will?
Because Life is Full of ‘What ifs’:
For most of us, the reason for making a Will is because we want certainty. We want to be sure that the ones we care for most receive exactly what we want them to inherit from our estate with the minimum of delays and deductions after we have passed on.
A Will is essential to identify what you want to happen but it doesn’t deal with many of the ‘what ifs’ in life that can affect virtually all families and prevent your wishes from being respected or cause your heirs to lose their inheritance.
In addition, a Will does not address the delays and potential costs caused by Probate, prevent generational Inheritance Tax or the potential burden placed on beneficiaries to pay an Inheritance Tax liability prior to receiving their inheritance.
There are many benefits of using a Trust as part of your Legacy Planning that a Simple Will alone wouldn’t provide. These benefits fall broadly into six main categories:
Preventing Sideways Disinheritance
Including a Trust within your Legacy Planning can prevent sideways disinheritance, protecting your beneficiaries and ensuring that inheritance remains solely with your heirs for generations to come.
What if you or your spouse remarries after becoming widowed?
What if a beneficiary were to become divorced?
What if a beneficiary suffered financial hardship?
What if a beneficiary were to die prematurely?
What if a beneficiary is, or becomes reliant on state benefits?
Inheriting at the Right Time
What if a beneficiary isn’t ready to receive their inheritance?
Sometimes it isn’t always best for a beneficiary to receive their inheritance in one go. If they are young, a vulnerable adult or struggling with drug, alcohol or gambling addictions for example, it might be preferable for their inheritance to be released in stages and under the supervision of a trusted friend, family member or professional.
A Trust provides the flexibility to accommodate this arrangement.
Preventing a Successful Challenge
A Trust is without doubt the most robust way to ensure that any challenge would be unsuccessful, not least, because it removes the need for inheritance in its literal sense.
Avoid the Need For Probate
Avoiding Probate provides instant access to inheritance & mitigates cost.
The Burden of Dealing with Inheritance Tax
How will Inheritance Tax be paid?
If the value of your estate exceeds the Inheritance Tax threshold, HMRC will expect that any tax due is paid before they will allow the Grant of Probate. In other words, the tax has to be paid before your beneficiaries receive their inheritance.
Mitigating generational Inheritance Tax
It is not unusual for assets to create an Inheritance Tax liability more than once.
Leaving assets to someone via a Trust can prevent those assets ever forming part of the beneficiary’s estate, therefore avoiding a next generation Inheritance Tax.
Extracts from HMRC Website Sept 2014:
“You must pay some or all of any Inheritance Tax due before you can get a Grant of Probate.”
“In most cases, you must pay Inheritance Tax within 6 months of the end of the month in which the deceased died. After this, interest will be charged on the amount outstanding.”
“You can pay in yearly installments over 10 years if the value of the estate is tied up in property such as a house”
Trusts as you can see are very important.