Wills and Trusts
Will Trusts & Property
Please note that the Financial Conduct Authority does not regulate will writing, taxation and trust advice.
Understanding Will Trusts for Married Couples and Civil Partners
Will trusts are a popular estate planning tool used by married couples and civil partners. These trusts are typically set up when a family home is divided equally between both partners, meaning each owns 50%. Instead of leaving their share of the property to each other in their wills, they place it into a trust. This trust is activated upon the death of the first partner.
How Nil Rate Band Trusts Work
A nil rate band trust was once a common strategy to help married couples and civil partners avoid paying inheritance tax. In this arrangement, the estate is split into two halves, with each partner’s share falling within the nil rate band—the portion of the estate that is not subject to inheritance tax. By ensuring that each half of the estate stays below the tax-free threshold, this structure helps minimize inheritance tax deductions.
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Transferable Nil Rate Band
The Impact of Transferable Nil Rate Band on Inheritance Tax Planning
Since 2007, the need for nil rate band trusts in property has decreased, thanks to the introduction of the transferable nil rate band. This change has simplified inheritance tax planning for married couples and civil partners.
What is a Transferable Nil Rate Band?
A transferable nil rate band comes into play when one spouse or civil partner passes away and their estate doesn’t use up the full nil rate band (the portion of their estate that is exempt from inheritance tax). The unused portion of the nil rate band can now be transferred to the surviving spouse or civil partner, effectively increasing the inheritance tax threshold on the second death.This means that the surviving partner can benefit from the unused portion of the first partner’s nil rate band, reducing the overall inheritance tax liability on their estate.
Will Trusts & Long Term Care
How Will Trusts Can Help Protect Your Assets from Care Costs
The cost of long-term care can be significant, but using a will trust when your partner passes away can help protect your assets from these steep costs.
Protecting Your Share of the Family Home
When your partner dies, you have the right to remain in the family home. This is an important benefit, especially if you need to pay for care later in life. In the case that you require care, your assets will be assessed to determine how much you need to contribute toward the cost of your care.
How Will Trusts Help with Care Costs?
With a will trust, only your share of the property is considered in the asset assessment. This means that the value of your partner’s share in the home is protected, reducing the amount you may need to contribute toward care costs. This can help you maintain financial stability while navigating the costs of long-term care.
Will Trusts & Inheritance
Will Trusts and Inheritance: Protecting Your Children’s Share
To avoid the risk of sideways disinheritance, you can set up a will trust as part of your estate planning.
What is Sideways Disinheritance?
Sideways disinheritance occurs when children are unintentionally left out of their parent’s estate due to the surviving partner remarrying. If the surviving spouse or civil partner doesn’t make proper provisions for their children in a new will, there’s a risk that the entire estate may pass to the new partner instead, excluding the children from their inheritance.
How Will Trusts Protect Your Family’s Inheritance
By setting up a will trust, you ensure that your children’s share of the estate is protected, even if your surviving partner remarries. The trust can clearly define how your estate is distributed, preventing it from being passed on solely to the new spouse, and ensuring that your children receive what you intended.
Are there any alternatives to Will Trusts?
Lifetime Trusts vs. Will Trusts: A Key Difference in Estate Planning
If you’ve considered will trusts but feel they aren’t the right fit for your needs, lifetime trusts might be a more suitable option. Unlike will trusts, which only come into effect after your death, lifetime trusts are established and activated while you're still alive.
How Do Lifetime Trusts Work?
With a lifetime trust, your property, such as your home, is transferred to the trust while you continue to live in it. This means that, should you need to enter residential care later on, your home won’t be included in the assessment of your assets. As a result, you may be able to reduce the cost of your care, as your home is no longer considered part of your estate.
Risks of Lifetime Trusts
However, there is a potential risk. Local authorities may view the transfer of your home into a lifetime trust as a deliberate deprivation of assets, which could lead them to treat your home as though it’s still part of your estate when assessing your eligibility for care funding. This could result in your assets being counted against you, potentially impacting the affordability of your care.