It’s never too early to start planning for the future, and if you’re thinking about how to distribute your assets when you pass on, a trust may be an effective way for you to leave as much as possible for your loved ones. A trust is an arrangement that governs how money or property is managed by one or more parties (the trustee/s) on behalf of another (the beneficiary/beneficiaries). There are many different kinds of trusts, each tailored for different purposes.
Giving you an in-depth insight into all things trusts, we’ve put together this handy guide which explores four different types of trust and how they can be used to protect your assets in the event of your passing.
Discretionary Trusts
A Discretionary Trust is a common financial planning tool, which is often set up to put assets aside for children and/or grandchildren for a future financial need, or as a protective measure for a vulnerable family member who may be unable to manage their own finances. Trustees are given the power to decide how funds are allocated from the trust and when the beneficiaries receive it, completely at their own discretion. In order to guide the decisions made, trustees can be supplied with a letter of wishes to express your thoughts and guidance – but it’s important to note that this is not legally binding.
Whilst you forfeit some control in this system, the trustee cannot change who benefits from this fund, and the additional control they have allows for them to account for future needs and situations. Should one child suddenly fall ill for an extended period of time or require extra support for any other reason, that flexibility allows the trustee to protect them financially.
Protective Property Trust (PPT)
You’re planning for the future, and you want to make sure your family is taken care of. A Protective Property Trust (PPT) can help you to protect your share of your home, and ensure the value in your property passes on as you intend. Created whilst both yourself and your partner are alive, a PPT allows someone to benefit from your estate after your passing as if they owned the assets, allowing the surviving partner to live in the property for the rest of their life, or for a specific period of time.
The most common use of a PPT is to ensure that each partner’s share in the home passes to their children at the end of the trust, as directly gifting their share in the property to the surviving partner through a will or by survivorship in the case of intestacy can cause many issues. At the end of the trust, the property can pass to the other beneficiaries, typically distributed to the deceased partner’s children. This means that, if the surviving partner decides to remarry, a PPT helps to protect the beneficiaries’ inheritance by preventing the deceased partner’s share from passing to their new family, through the process of sideways disinheritance.
In addition, PPTs can help to protect your family home from being included in assessments of long-term care fees, as these fees can significantly reduce the value of the inheritance you would like to pass on. PPTs can assist in ringfencing some of your estate, allowing the surviving partner to benefit from your estate without actually owning it, and therefore preventing its value being included within means testing. However, PPTs cannot be used solely for this purpose, and it’s vital to get specialist advice from a will writing expert.
Family Protection Trust (FPT)
A Family Protection Trust (FPT) is a type of discretionary trust that is specifically designed to protect the value of your assets. Essentially a safety deposit box for your house and other aspects of your estate, they are commonly used by couples and individuals who seek to reduce the risk to assets in excess of £23,250 from taxes, care fees and other unexpected scenarios in the future, such as your partner remarrying, or the failed marriage of one of your children. Legally, assets that enter into a trust are no longer owned by you, but you still retain access to the assets in the trust whilst you are alive, and can add to, borrow from, or pass down as you wish to your family or other beneficiaries. As an open trust, FPTs also ensure that you also retain guaranteed right of occupation, meaning that you can stay in a property until you pass even if you put it into the trust.
Much like a PPT, an FPT can assist with reducing the value of your estate for the means testing process of calculating owed care home fees – as fees are based on your income and assets. By retaining property and assets within a trust, they are not legally owned by you, so FPTs can help these assets to be disregarded for these fee assessments as long as the trust is correctly set up at the right time, and if protecting your assets from care home fees is not a significant reason for the trust’s creation.
Flexible Life Interest Trust (FLIT)
A Flexible Life Interest Trust (FLIT) is the best way to ensure your benefactors are immediately supported upon your passing, whilst also protecting the assets for others. Unlike standard trust structures, where value is passed on in the form of assets, FLITs provide for your dependents through the income gained by the assets. It’s perfect for those with dividend-earning shares who have a number of trustees they seek to provide for. The FLIT will ensure that those who you wished to support after you pass get access to the funds they need, whether that’s through a set of rules you have created, or at the discretion of a trustee.
FLITs are at their most useful when you have a large amount of dependents who you wish to support. Your family may be in a situation where some children require support immediately upon your passing, typically the youngest, meaning that there is an imbalance of needs among the benefactors. However, you may not want to simply pass on assets to them for a variety of reasons. They may be too young to own something, or a life tenant may prevent them from accessing the value in your property. Through a FLIT, those people beneficiaries access to the income off your assets without needing to take from your estate, as they benefit purely from income. At a later date, such as when a life tenant passes or moves out, the trust can then equitably share out assets as usual.
We hope that this blog has been informative, giving you an insight into the various types of trusts and how they can be used to maximise your loved ones’ inheritance. At RRK Legal, our skilled and experienced estate planners are renowned for providing clear, concise and tailored advice on creating and managing trusts. Whatever your situation, get in touch with the RRK Legal team today to find out about the best estate plan for your needs, or find out more on our Trusts page.
Website: www.rrklegal.co.uk
Email: info@rrklegal.co.uk
Telephone: 01215460771
