Using trusts in Wills has become a more and more common practice over recent years. The main reasons for this are the increasing prices of houses and families becoming more diverse from tradition. This article will help you find out more about what trust Wills are, what different trusts there are and help you decide if one might be suitable for you.
What are Will Trusts?
The first thing to know is that a Will trust will only ever come into effect when you pass away, and you are able to change your Will at any time to change how the trust works or remove it entirely. Trusts allow someone to be a beneficiary from trust property, and so they have the equitable ownership but while not being the legal owner, the trustees will be the legal owners. Although, the beneficiary and the trustee can be the same person. This gives you more control over what happens to your property when you pass away compared to your normal Will.
What are the different types of trusts used in Wills?
There are two types of trusts most commonly used in Wills, Interest in Possession Trusts and Discretionary Trusts.
Interest in Possession Trusts
I will only be touching on Property Interest in Possession Trusts (IIP) for the purposes of this article, as I find this to be the most commonly used Interest in Possession Trust and the most appropriate for many customers. Will writers and solicitors that use these trusts can also be known as Property Trusts, Property Protection Trusts, Lifetimes Interest Trust and more names but the principle is usually the same.
These are mainly used by couples that own a property together as tenants in common, each partner leaves their half of the property into a trust upon their death. The beneficiaries are often children but may be whoever you wish. Within the trust is the condition of a life times use of the property for the surviving partner, however this can be restricted to a certain amount of time. This can also facilitate the surviving partner being able to move to a new house and the trust purchase them the new property to live in. They could also elect to rent the property out and take the rental income.
At all times the trustees must ensure the property is kept in good condition for the final beneficiaries once the surviving partner passes away. The final beneficiaries are known as the remaindermen, they only get the property once the surviving partner has also passed away. This means they cannot pursue their inheritance early or have it pursued to settle any debts they have, so the surviving partner is safe.
An advantage of doing this planning is firstly that if a marriage after death of one partner occurs and they predecease their new partner, your half of the property is already in trust to your children or other elected beneficiaries and so they will still get that inheritance. Otherwise, if you had done a Will without a trust, simply leaving everything to each other and this scenario occurs then a 3rd party receives the property, the new spouse, and not who you would have wanted. This is often known as a sideways disinheritance and does occur.
The second main advantage of this planning is if the surviving partner was to go into long-term care later in life then rather than owning the property as sole owner and having it assessed and sold to pay for their care home fees. Instead, the surviving partner only own half the property and legislation states that when half is in a trust under the 2014 care act which stipulates how local authorities should means assess your assets the property has a nil value and so is not used for these fees. This could save your children’s inheritance a tremendous amount.
Another scenario in which an Interest in Possession Trust can be used is when you own your property in your sole name and want your children or family to inherit this property eventually but while providing your partner with the use of the property for a certain amount of time or for their lifetime. This means your partner is provided for with the use of the property and right to income from the property i.e. renting it out if wished, but you have the guarantee that your children will inherit the property once the partner is done using it. Otherwise, as in a standard Will if you left your partner the property, they would be able to make a Will leaving it to anyone that wish such as their own family or new partner after your death.
We hope this article helps give you some information on Trust Wills, specifically Property Interest in Possession Trust, and why you may wish to consider one when making Wills. If you have further queries about these types of trusts or any others such as discretionary trusts or would like to discuss making a Will yourself, please enquire with us today.