Understanding Estate Planning

Trust planning by Marshall Wills and Trusts

Trust Planning - Establishing trusts and loans

Trusts are legal concepts that have been developed over the centuries to become robust mechanisms used the world over. Having assets pass into Trusts is key to ensuring assets and wealth are fully protected and preserved for your future beneficiaries. View more about trust planning.

Each Trust has trustees and beneficiaries. The Trustees are responsible for managing the assets within the trusts for the benefit of the beneficiaries. These can be the same people. We always recommend having Professional Trustees added so that the trusts are managed correctly, and the right advice is given to ensure the assets and wealth are fully protected for generations to come. It’s all very well having Trust planning in place, but without Professional Trustees appointed, assets could still be lost.

Once a Trust is created, the assets and wealth pass into them, and by naming beneficiaries to those Trusts, it ensures the assets stay outside of the beneficiary’s estates. The mechanism of passing the assets to the beneficiaries, therefore, takes on the form of a loan. As the assets were loaned, they do not sit within the beneficiaries’ estate, which means they do not own the assets, and therefore, the assets cannot be attacked as they are not owned 100%.

Estate Planning

Severance of Tenancy (Tenants in Common)

As already explained, you never want to own assets 100% because assets owned 100% are attackable. So why do most people own their homes and other properties jointly with their husbands, wives, or partners?

The issue here is that jointly owned assets pass directly to the surviving joint owner regardless of what it may say within a will. This is because when you own something jointly, you both own it 100%. When it comes to property, this can cause massive issues later in life, especially if one joint owner passes away. This now leaves the survivor owning the whole property. If later the survivor needs to go into care and doesn’t have the physical cash to pay for that care, the care assessment team will look at the assets owned 100%, i.e., the home.

40,000 homes are sold every year to pay for care, and this could have potentially been avoided by the property being owned as tenants in common rather than jointly. With tenants in common, you own a defined share, normally as a married couple 50-50% split, but this can be any split. If you adopt this strategy, you will need to set up a Trust to hold your respective 50% upon death and have a Will in place directing this 50% into the Trust. Without the Trust and only a basic Will in place, you could potentially pass back the 50% to the survivor, thus putting the property back into an attackable situation.

If one of the owners passes away, their 50% of the house passes into their Trust, leaving the survivor owning just half a house, to which there is no value. This means the house cannot be used for the care assessment and ensures the home is fully protected from being sold to pay for future care costs. The survivor still has full control of the property because they are normally a beneficiary and Trustee of the deceased’s 50%. This also protects 50% of the value of the house should the survivor remarry.

If you own a residential property solely, there is a strategy to put the property into Trust during your lifetime. This strategy changes the ownership of the property to the Trust, but it doesn’t take the house out of the estate for Inheritance tax purposes because you still derive a benefit, i.e., you still live in it. There are, however, time restrictions on this strategy, and should you know, or be aware, you are going into care soon, this would be deprivation, and the planning could be unwound. This is a strategy that needs to be implemented years before the likelihood of care being an issue.