If you're reviewing your will, or maybe even writing one for the first time, you may not have thought of including a trust in it. There are several reasons couples may wish to include a trust in their will, from historical practice to forward planning. Here are five reasons you may wish to consider including a trust in your will that you may not have thought of.
If you have a will dated before October 2007 you may already have a trust in your will. It was standard planning before that date for married couples or civil partners to leave some of the estate of the first to die on to a trust and the balance of the assets to the surviving spouse.
The amount usually left in trust was the available nil rate band. The nil rate band is the amount of assets an individual can have in their estate before inheritance tax is charged. It is currently £325,000.
Planning like this was done historically because without the trust the nil rate band of the first of the couple to die was wasted. Now, thanks to the transferrable nil rate band, it is possible for married couples to effectively transfer unused nil rate bands between them.
However, before you rush out and change your will for something simpler, you may still want some form of trust.
Rather than leaving their assets outright to the survivor, the first of the couple to die could leave all their assets to the survivor via a trust. This means that while the survivor can continue to benefit from them they do not actually own the assets. Those assets should not then form part of the value of the survivor’s estate if they are ever assessed for care home fees.
Where one or both spouses have remarried, it is common for them to want to provide for their current spouse by, for example, allowing them to live in the family home. Ultimately however they may want their assets to pass back to children from previous relationships. Trusts are an effective method of allowing this to happen.
Trusts can also protect assets for the children of the first marriage in the event that the surviving spouse remarries or changes their will. One client called this the ‘anti-floozy clause’ as these trusts can help prevent a surviving spouse’s new partner getting their hands on the deceased’s assets.
Where you have assets eligible for inheritance tax reliefs such as Business or Agricultural Property Relief you may want to consider gifting these assets into trust on the first death, rather than directly to the surviving spouse. This means reliefs are claimed as soon as possible.
This helps to deal with the risk of either legislation, or circumstances, changing between the first and second deaths. Otherwise reliefs that had been there on the death of the first spouse could be lost by the time of the second death.
One reason for still including a trust for assets up to the nil rate band in the will now might be if you have assets which you think will increase in value faster than the nil rate band. In this case putting assets in a trust through the will should keep their future growth out of the surviving spouse’s estate.
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