5 things you should know about Will Trusts
Protect more than just your solely owned assets with a Will trust
If you die without a Will your estate is distributed in accordance with Government defined rules of Intestacy. Only by writing a Will you are in control of how your assets are shared out, who benefits from your estate and by how much. BUT…. a Will only takes care of assets that are SOLELY owned by you. In this post we look at FIVE important things that you should know about Will Trusts, how they can protect your jointly owned assets and their hidden dangers.
What happens to your share of any jointly owned assets?
Our jointly owned assets – typically property (possibly not a beach hut, but we can all dream)– are often our most valuable and yet the vast majority of people give little thought as to what will happen to their share of that asset once they have gone. We may just assume that our property will pass on to our children when we die but, life doesn’t always work out like that. We may also have young or vulnerable members of our families that we wouldn’t necessarily want to inherit a large sum of money – that’s where a Will Trust comes in.
Standard Will vs Will Trust
In a standard Will you are only choosing what happens when YOU die. A Will trust allows you to choose what happens to your assets when you BOTH have died.
There are two categories of Will Trusts
Will trusts fall into two categories – Asset driven or Beneficiary driven which, unsurprisingly are used to either protect your assets or your beneficiaries….!
Threats to your assets
Using Will trusts, legal ownership of your share of jointly owned assets will NOT pass to your spouse (or the other owner). This ensures that your chosen beneficiaries end up with what you want them to.
Mr and Mrs Jones have been married for ten years and have two children together. Mr Jones has two children from a previous marriage, they divorced 14 years ago. Mrs Jones was widowed 15 years ago and has one child from that marriage. Mr Jones is killed in a car crash, without a Will trust in place here is what could happen…
Accidental sideways disinheritance
Mrs Jones meets someone new and marries them. The marriage voids her existing Will and she forgets to write a new one. She then develops cancer and dies within a few months. Her new husband inherits all of Mr Jones’ assets due to the laws of intestacy, his children end up with nothing.
Following his death Mrs Jones lets it be known she never liked Mr Jones’ children and writes a new Will leaving everything to JUST her children, his children end up with nothing.
Mrs Jones survives another 40 years. But, by the time she dies she’s drifted away from Mr Jones’ children and forgets to or, simply decides not to, name them in her new Will, his children end up with nothing.
Mrs Jones decides to set up a new business. The business fails and she ends up bankrupt, his children end up with nothing.
Mrs Jones meets a new partner and get married again. After a couple of years he divorces her and Mr Jones’ assets end up as part of the divorce settlement, his children may end up with nothing.
Mrs Jones lives another 40 years but, spends ten of those years in care. While Mrs Jones’ assets can rightly be used to pay for her care, Mr Jones’ assets can also end up being used to pay for her care, his children may end up with nothing.
By putting Will trusts in place, no matter what happens after Mr Jones’ untimely demise his share of any jointly owned asset that he severed and protected with a Will trust is protected and passed on to his children as he would have wished.
Threats to your Beneficiaries
There are two types of trust that you can use to protect your beneficiaries. A Disabled person’s trust and a discretionary trust. These trusts are useful in ensuring any vulnerable, young or disabled person is not at risk of;
– Being taken advantage of
– Selling the asset and squandering the money
– A Parent of a minor using the money for themselves
– Losing their disability benefits
Out of date Trusts
If your Will includes a Nil Rate Band Discretionary Trust you could be faced with a hefty and avoidable Inheritance Tax bill. These type of Trusts were very popular in the 1980’s but under current tax legislation prevent access to Residence Nil Rate Band allowance and are very complex to administer. If you do have one it is best to update your Will in line with current legislation. No one wants to pay more tax than they should.
Will trusts are very simple to set up and can be written into any Will. Our head of Estate Planning Alan McAloon, will be talking all things Wills and Trusts across both days of the 50+ Show, taking place on the 15-16th July 2016 at London Olympia. Entry is free and you can register your place here: http://www.50plusshow.com/london/