What needs to be considered when you are including Trusts in your wills?
1 – The Will is not the Trust
Many clients are under the impression that writing Trusts into their wills means that the Trust exists, it doesn’t, in the Will we write the provision for a Trust, the specific instructions to your Executors to create a Trust on your death, only then does the Trust exist.
2 – Further costs on set-up
As with any legal instrument, there is usually a fee involved, this varies depending on the type of Trust and obviously will change due to inflation over time so it’s impossible to say how much this will be at the time of your death. However, Trusts usually protect assets of some sorts and if the asset is worth protecting then it’s usually worth a little expense to do so.
3 – Land Registration and safety of Deeds
If you live in a house that you have lived in for many years then it is possible that the property isn’t registered at the Land Registry, if this is the case then the ownership or Title to that property is described in the Deeds only and if they are lost or untraceable at the time of your death then there is potentially a large mess to clear up before any Trust can be created. This will not be the case if you’ve bought the house in recent years as, nowadays, we have compulsory Registration of Land before any land transaction can take place, this includes the transfer of land for no money such as gifting it to someone or transferring it into a Trust. This can also be avoided by going through Voluntary First Registration of the property in good time, then the property can be transferred into a Trust with or without the Deeds as the Land Registry already knows who owns it.
4 – Trustees need careful selection
Your Trustees need to be carefully selected as you need to be able to trust them, like it says on the tin so to speak. You need to trust them to make the right decisions for both the preservation of the asset and to make the right decisions for the good of the beneficiaries of the Trust and so that the assets inside the Trust are still in good order for the Remaindermen of the Trust, these are the people who will eventually own the assets once the Trust has been closed down.
5 – Failed Trust: life Tenant is also the Remainderman
This is less common now but there have been many occasions where the life tenant has also been named as the Remainderman, this will cause a Trust to fail as it cannot do the job it was designed to do. If you use a Professional Will Writer you are unlikely to fall into this trap.
6 – Taxation and Further Fees: The Trust also has a Lifetime
There are 2 main taxes that Trusts attract, one is a periodic charge, for Trusts with more than the Nil Rate Band (currently at £325,000) in them then the element above that figure is taxed at 6% every 10 years, the equivalent of 0.6% a year. The other type of tax is Exit Charges which obviously occur when a Trust is closed or when a large sum is removed from the Trust for good. As far as other charges are concerned, many Trusts need to have an annual meeting of the Trustees to ensure that their obligations are being met and that the Trustees continue to agree on the running of the Trust, such meetings need to occur and minutes of the meetings need to be kept to satisfy the authorities that the Trust is being run adequately. During the lifetime of the Trust, if the value of the Trust is over 80% of the current Nil Rate Band, then the Trustees must also submit a Tax Return in order to enable the Taxman to tax any income paid out to the Beneficiaries.
Trusts are an excellent way to control and protect assets after your death but, as with anything that’s worth having or using, there are costs attached to it. If the job is worth doing it’s worth doing well so usually worth the fee.