Should I have a trust in my Will?
In this extract from Choice Magazine (www.choicemag.co.uk), Oliver Embley, Senior Associate in the Private Client Team, answers a reader’s question on Will trusts.
Should we update our Wills?
Back in 2002, my husband and I each made Trust Wills. Could you advise if, under present legislation, they are, firstly, still legal and, secondly, whether a Will leaving legacies to named individuals and everything else to each other would now be better? We are in our mid-80s and the house is held as ‘tenants in common’.
Name and address supplied
Charmaine Hast, head of the family team at Wedlake Bell LLP, replies:
I referred your question to Oliver Embley, a senior associate in our Private Client Team, and this is his reply: Will trusts are, indeed, legal and can be beneficial for protecting assets from divorcing spouses, creditors, and for tax planning flexibility. It is possible that you have ‘nil-rate band’ trusts, under which an amount equal to the Inheritance Tax (IHT) nil-rate band (currently £325,000) passes into a trust on the first death for the benefit of the survivor and family.
This type of trust was common before the introduction of the IHT ‘transferable nil-rate band’ in 2007, because it ensured the nil-rate band was used fully. The trust is now less important from an IHT perspective, but we often recommend it is retained for its non-tax advantages.
The downside to Will trusts is the added complications. If Will trusts are kept going, there will be tax charges and administrative expenses (although usually minimal with nil-rate band trusts, at least for the first ten years). However, if a Will trust is brought to an end within two years of death, the IHT legislation will treat the trust as never having existed and there will be no IHT charge for terminating it.
One option is therefore to retain your Will trusts and your executors/trustees can take a decision at the time, winding up within two years if necessary. As your Wills were made 15 years ago, it would be sensible to review these with a solicitor as your family's circumstances are likely to have changed since 2002. It may be that the current trust structure is still suitable; however, without knowing your family circumstances, I cannot say whether a simple Will or one containing trusts is better for you.
Generally, for higher-value estates (more than £1M or so) or for those with complex family circumstances, such as step-families and second marriages, Wills containing trusts are better. For more traditional family arrangements and lower-value estates, a simple Will would probably be effective.
This article was first published in www.choicemag.co.uk, May 2017.