At Streathers we have considerable expertise and experience in advising on wills which include trust provisions.

Trusts are inherently complex and will invariably include tax implications as well as legal and practical ones. A primary consideration will often be whether to set up a trust while you are alive, known as a lifetime trust, or to set up the trust in your will.

Reasons for considering a will trust

These may include :-

• Seeking to protect your assets, typically your property, so that if your spouse survives you and needs care in the future, your share of the assets will not be potentially subject to having to pay for your spouse’s future care;
• Where you have reasons to doubt the inheritance you want to leave to a family member will be utilised as you wish or preserved and enhanced for future generations. You may feel that some family members are financially irresponsible, immature or inexperienced.
• You have very valuable or complex assets and feel that these would be better managed by trustees for the short, medium and long term benefit of those you wish to benefit.
• Beneficiaries may possibly be too young to inherit your assets and therefore some long term plan is needed;
• You have particular wishes as to how the money or other assets you will leave in your will should be managed, which may be ethical or otherwise.

Setting up a will trust and choosing trustees

As with any form of trust, the terms can either be very straightforward or highly complex and technical. If you fully trust the trustees you appoint you may just include fairly standard and short form clauses which give the trustees very wide discretion.

Alternatively, you may decide to set very clear directions as to how your trustees should administer the trust and restrict their powers.

Choosing trustees is a key decision and will be likely to impact your thinking as to the drafting of the terms of the trust. It is always a good idea to carefully consider who to choose as trustees and to check that those people are willing to take on the role, whether they will be paid for their time and expertise and what happens if they predecease you or die during the time period in which the trust is intended or likely to apply.

Are there any disadvantages to setting up a trust in a will?

Potential disadvantages of will trusts include :-

• Thinking that you will definitely save tax. Tax laws change and experienced advice is strongly recommended.
• Administration costs of the trust – trusts almost inevitably involve legal costs and other outgoings.
• Could it be more beneficial to set up a lifetime trust?
• The potential for conflict between trustees and beneficiaries.

Why is this important?

Individuals subject to UK inheritance tax (IHT) currently have a tax-free allowance of £325,000. This ‘nil-rate band’ (NRB) can be transferred between spouses on death resulting in a potential tax free-allowance of up to £650,000 for surviving spouses.

From 6 April 2017, an additional tax free allowance (known as the ‘residence nil rate band’ (RNRB)) applies so that less IHT may be paid when the family home is left to descendents. Claiming the RNRB could enable an additional £100,000 to £350,000-worth of assets to pass to the next generation without a charge to IHT with potential tax free allowances for a surviving spouse reaching £1,000,000.

The terms of your Will can affect your ability to claim the RNRB. Therefore it is important to review your Will now (or make one if you have not already done so) to make sure that your family can benefit from the maximum available tax free allowance when you or your spouse or civil partner die.

Key Points

• To benefit from the RNRB, your estate must:

• comprise a qualifying residential interest (i.e. your home) at the date of your death; and
• that residential interest must be ‘closely inherited’.

‘Closely inherited’ means that the house is inherited by your lineal descendants (children/grandchildren) and includes step and adopted children.

• If a couple own more than one property at their death then their executors can nominate which property will benefit from the relief and the RNRB is still available where an individual ceases to own a home (for example they sell their home to move into a residential care home) or downsizes to a smaller property.

• If a deceased person’s estate is valued at over £2,000,000 at the time of their death then there will be a tapered withdrawal of the RNRB at a rate of £1 for every £2 above the £2,000,000 threshold.

Example

A husband dies in June 2017 leaving his entire estate worth £1.8 million to his wife. There is no inheritance tax liability and the husband’s full RNRB and his NRB is transferred to his wife. The wife then dies in June 2020 leaving her estate worth £2 million (which includes her primary residence) to be divided equally between her two children. Her estate will benefit from a NRB of £650,000 and a RNRB of £350,000, so a total relief from inheritance tax of £1,000,000.

Things to consider

• If you think that your estate will be worth over £2,000,000 at your death you may wish to consider how the value can be reduced below this level by effective succession planning.
• Who are you leaving your residence to in your will? Will you benefit from the RNRB?
• Keep records if you are selling your residence and are buying somewhere cheaper, or not buying anywhere else. We recommend keeping a copy of the sale contract with your Will.

Who will not benefit?

• Individuals who rent a property and invest all their capital, e.g. in shares / rental properties
• Individuals who do not have any children
• Partners who are not married or in a civil partnership will not be able to transfer any unused part of the RNRB (or their NRB) although they will still benefit from their own RNRB.

REASONS FOR MAKING A WILL

The recent outbreak of the coronavirus in the United Kingdom has impacted almost every aspect of daily life. This period of uncertainty has led many to cast an eye to the future, and for some, this has meant considering their Will arrangements.

Streathers has received an increase in Will enquiries in recent weeks in response to the COVID-19 outbreak. Many of the questions posed have concerned whether or not our clients need a Will, and if so, how they can go about making one whilst they are self-isolating or social distancing.

We’ve set out some of the most commonly asked questions below and collated all the necessary information so you can make an informed decision as to whether or not this is something you need to consider further.

Why make a Will?

A Will gives you control over what will happen to your money, property and possessions after you die. It allows you to ensure that your dependents are properly provided for, that you have appointed legal guardians for your children, and can potentially save tax.

No matter the size or extent of your estate or the type of property you own it is important to have a properly drafted Will, for if nothing else, it provides some certainty to your loved ones in what is a highly emotional and stressful time. 

What happens if I die without leaving a valid Will?

If you die without leaving a valid Will, you are said to have died “intestate” and everything you own will be distributed in accordance with the “laws of intestacy”. This is a statutory framework of rules that sets out who should inherit your estate in the absence of a Will.

The impact of these rules varies depending on an individual’s circumstances.

For instance, if you die intestate leaving a spouse (or civil partner) and children, then under the intestacy rules a percentage of your property will go to your spouse (or civil partner) and the remainder would be split between your children.

There are however some glaringly obvious omissions in the intestacy rules. For example, the intestacy rules do not recognise co-habiting individuals who are unmarried or not in a civil partnership. Therefore, if you live with your partner and die intestate then your partner will not automatically inherit anything from your estate.

The key point here is one of choice and control. Without a Will, the choice is taken away from you and you may find your estate is inherited in a way that you never wanted and with unintended consequences leading to disputes.

What type of information can be included in my Will?

Wills should be tailored to each individual, reflecting their personal wishes and circumstances and putting in place the best structure for dealing with their estate when they die. However, for reference,  a Will usually covers the following points:

• What your funeral wishes are.
• Who you would like to be responsible for administering your estate.
• Who should be the legal guardians of any minor children.
• Who should inherit your estate and how, whether that be your family, friends, or charities you support.
• How to deal with any business or partnership you may leave behind; and
• How to deal with property that you own, including property located abroad.

I am social distancing. How can I make a Will? Do I need to see you?

We need some information from you about your personal circumstances and wishes in order to prepare your draft Wills.

You do not need to come in to see us to do this. We can take instructions from you over the phone or by video conference, or if you would prefer to do this in writing, we can provide you with a Will Questionnaire to complete and send back to us by email.

We will then prepare and send you a draft of your Will along with explanatory notes that set out the current effects of your Will as drawn. If necessary, we will also advise on any potential pitfalls of your draft Will and/or points you might like to consider further.

Once you are happy with your draft Will, we will finalise it for signature. This can be printed at home or sent out to you in the post.

How do I sign my new Will?

To be valid and enforceable, a Will must be signed by you in the presence of two independent adult witnesses.

The social distancing measures enacted by the government present difficulties in arranging independent witnesses to be present when the Will is signed.

However, the role of the witness is not to review the contents of the Will but to simply confirm that you have signed it, and so, there are many practical ways that this can be achieved whilst complying with the social distancing guidelines (such as a neighbour witnessing through the window or from across your garden, etc).

We can assist you throughout this process by preparing detailed guidance on how you can ensure your Will is executed validly, whilst complying with social distancing guidelines. We are also available on the phone to talk through any issues at the Will signing as they arise. 

How much do you charge? 

Streathers’ fees vary depending on the complexity of your Wills.

Once we have gathered a little information in from you about your circumstances and your intentions we will give you a fee estimate for preparing your Wills. You’ll have a full opportunity to raise any questions on this before we undertake any substantive work so you are informed of and in control of the costs throughout. 

I already have a Will do I need to do anything? 

Even if you have already made a Will, it is important to review it regularly. Your family circumstances and the relevant tax law may have changed since your Will was signed.

Again, we do not need to see you in person to advise on any issues surrounding existing Wills. You can send us a scan or picture of your Will and we can follow up with advice on the phone or by email where necessary.

If you would like to find out more about Streathers’ Will services then please contact a member of our Private Client team. We would be pleased to assist you with the process.