To make sense of the question ‘do I need a trust to avoid probate?’ it’s important to understand firstly, why the enquirer wishes to avoid probate at all and secondly, what they might direct into any future, trust.
- Probate is the authority by which one administers the affairs of the deceased.
- Care must be taken in using trusts as rules are complex.
- Avoidance of probate is arguably a poor reason to consider trusts.
When a person dies in England or Wales, someone must take responsibility for distributing or disposing of their ‘worldly goods’ (their ‘estate’). Where a valid will has been identified for the departed, ‘executors’ may have been appointed, by the deceased, to fulfil this role.
‘Probate’ itself describes the legal authority, given by the court, to e.g. an executor, to administer a deceased person’s estate. It is nothing more than this: a role or function. The duration and complexity of the executor’s job, arguably has much more to do with the structure of the dead person’s estate, than it does with administrative aspects of probate itself.
Do I need a trust to avoid probate?
Probate is not required in all cases, irrespective of any trusts which may or may not exist. Where an estate is smaller than £5,000 in value, for instance, it may not be needed. Beneath this threshold, institutions may release monies on seeing only a death certificate.
For estate valuation, it’s important to remember that the deceased’s ‘estate’ is made up of things which they own solely and directly (plus debts). Jointly held assets e.g. bank accounts may pass to co-owners outside of any will. Pensions and insurances may or may not form part of the deceased’s estate, depending on how they are organised.
The above hints at a situation in which a trust may, usefully, help one to avoid probate. Pensions, life insurances and other contingent forms of remuneration (such as Death in Service payments), do not form part of a person’s estate in life. It is only on death that they may crystallise in their estate, so demanding administration through probate. Such payments may be configured so as to pay out directly into an ‘asset protection trust’, outside of the deceased’s estate, whose beneficiaries might be loved ones of the deceased. If the person’s other assets are low in value, probate might thus be avoided.
A trust might further, be used to avoid probate, simply by providing a destination for lifetime gifts (which may so be removed from the estate). It’s worth reflecting on whether such gifts, might, more usefully, be made to the intended beneficiary, in life.
One should be extremely careful around using trusts for several reasons. Non-exhaustively:
- The notion of “reservation of benefit”, may result in a gift’s being treated as never having taken place (in law). By way of example, if a property title is transferred into the name of a trust, but the transferor continues to live in the property. In this instance, benefits have been arguably, ‘reserved’ by the transferor.
- Any gift (with certain exceptions) that takes place within 7 years of a party’s passing away will fall under scrutiny as part of inheritance tax assessment.
- Trusts cost money to establish and operate.
- You may trigger Inheritance tax liabilities, payable in life, if assets being transferred to any trust exceed thresholds.
It is highly likely that your anxieties around probate reflect those associated with the unpicking of a complex estate. A general ordering of affairs might save more upset than the introduction of a potentially risky trust structure.
If you’d like discuss the use of asset protections trusts or any aspect of probate, visit our website at