Why do I need a will and a trust?

  • To ensure that your estate ends up with those you care about
  • To ensure your property is not lost in the event your spouse remarries
  • To insulate your estate from care fees and other creditors

 

I shall restrict my answer to consideration of ‘will based trusts’ (as opposed to lifetime trusts), and within that sphere, to one category of trust, being that to which the above question most often (though by no means exclusively) relates in my experience: the ‘life interest’ trust. For the avoidance of doubt, this article does not address issues relating to discretionary or vulnerable persons’ trusts.

Trusts have been a feature of English law for many centuries. Their core function is to separate legal and beneficial ownership. Will based trusts come about when a will is activated (on death of a testator – they do not exist from the moment the will is executed). In a sense they allow one to define a wholly new beneficiary in their will and, by this means, exert some degree of control/protection over assets for a period after death.

Perhaps the most common type of trust seen in modern wills are ‘life interest trusts’. As the name suggests these instruments allow the individual making the will to give a ‘life interest’ to someone (known as ‘the life tenant’) whilst retaining some agency over the final destination of the asset. A ‘life interest’ describes an ongoing benefit to the life tenant e.g. the right to live in a house (or to sell it and hold a new property on trust) which persists only while the life tenant lives.

By way of an example, ‘Mr’ and ‘Mrs’, a couple in their early fifties, own a substantial home. Should either pass, each wants the other to be able to live in the family home until their own death, however, they have worked hard to build up their estate and are keen that their son should receive the property, when the second of them passes. In particular, both wish to prevent their son’s losing out, in the event the surviving spouse should re-marry or be required to part or wholly fund their care in later life.

With this in mind, their will is drafted such that, instead of passing their respective interests in the family home to one another on first death, they instead pass them to a life interest trust (sometimes known as a Protective Property Trust, when it relates to a home).

To illustrate the usefulness of such a trust, let us consider the two situations feared by the couple described, and compare what might happen in the presence and absence of a life interest trust.

  1. Remarriage. Mr passes away, in the absence of a Protective Property Trust, his interest in the family home passes to Mrs. After a period of grieving, Mrs remarries. Mrs passes away soon afterwards, without having made a new will.

In this situation, Mrs, has died ‘intestate’. Her original will was revoked in law when she remarried. Under intestacy rules her entire house may now pass to her new husband. This situation, which is not only common, but which often arises without intent on the part of the deceased, is called ‘sideways disinheritance’. Had Mr used a Protective Property Trust in his will, his half of the house would have passed to the trust on his passing and from there to his son on the death of Mrs.

  1. Residential care. Mr passes away, Mrs is placed in residential care. Local authorities seek to fund her care through the sale of her assets. Where no Protective Property Trust has been used in either will, Mrs will take ownership of Mr’s interest in their family home, on his death. As such the entire property is exposed to an erosion in value by virtue of Mrs’s care home fees.

Had Mr used a Protective Property Trust in his will, his half of the house would have entered the trust on his passing, shielding it from charges. In practice, a much more significant portion of the estate’s value may be protected because ‘half a property’ lacks financial value.

It is crucial that arrangements such as those described, are properly established by a licensed and insured firm. Confidence Wills offer a high quality and affordable service, if you’d like any more information, please get in touch now at info@confidencewills.co.uk or visit our website at www.confidencewills.co.uk.