What a wind up.

As you may know, we are always attending events as part of our Continuous Professional Development and to ensure we have the latest information to share with our clients.

Last week, I was at an estate planning seminar where we heard that some solicitors are still insisting their clients wind up Trusts.

This really winds me up!

There is still a resistance to Trusts, perhaps because people think they are only for those who are jolly wealthy. As rich as the Duke of Westminster, perhaps. Or someone who owns a yacht.

But that’s just not so.

It’s wise for anyone to set up a Trust as part of their Will because if you leave your money directly to beneficiaries, you are subjecting your legacy to danger –  there is a risk that your hard-earned cash will be lost if a beneficiary has a failed marriage or goes into bankruptcy.

This approach is often called bloodline protection because it protects your legacy from going to anyone other than your lineage. That name is a bit of a marketing wheeze, as the proper technical terms for them include discretionary trusts, family protection trusts and wealth protection trusts.

Imagine this

You might want your life savings to go to your own bloodline, but their inheritance could be diluted if they’re married to someone irresponsible, for example, a spendthrift or bad money manager, someone unemployed or addicted to drugs or alcohol, a spouse who is abusive, unfaithful, or who has children from a previous marriage, and/or someone who is not on good terms with children from your offspring’s previous marriage.

The average inheritance lasts three to five years. Let’s face it, during that time, all kinds of things can go wrong. Here are some possible scenarios to illustrate the risk:

  • You leave your estate to your married daughter, but she gets divorced. Her ex-husband gets half but refuses to pay child support, which means there’s less for your grandchildren
  • You leave everything to your son, but he’s involved in a car accident where someone is seriously injured. The victim sues him and he has to pay them all the money
  • You leave your legacy to your married daughter but she dies, leaving everything to her husband. He remarries, and when he dies, he leaves everything to his new wife, disinheriting the children from his first marriage (your grand-children)
  • Your son inherits your estate, but the money has to be used to fund long-term care for his wife’s parents
  • Your daughter inherits everything, but she has a joint account with her husband and he has a gambling habit and squanders all the money

A bloodline Trust avoids all this, by keeping the money in your family line. Not only that but when your legacy is protected in a Trust, there can be a third party in the equation – it’s not just you (the settlor) and your beneficiaries, there are also the Trustee/s who oversee all spending.

A Trust also gives your beneficiaries very valuable tax planning options. For example, third-line (second generation) inheritance tax can be mitigated. Assets can be passed to the beneficiaries via a loan from a Trust which creates a debt on the beneficiary’s estate that is repayable on the death of the beneficiary. The value of this could produce a tax benefit for your beneficiaries’ children (your grandchildren) of £40,000 for every £100,000 which is directed through a trust. These benefits can be realised for 125 years under English law (80 years under Northern Irish law).

Further reading

If you found this useful, you might also enjoy our article from March 2018: NRB Trusts: yes or no?

For further information, please download these  PDFs from our friends and legal partners at Solidus.

If you have any questions, please give us a call on 01435 863787. We’ll be happy to help.

By the way

There is some good news about probate fees.

In April 2017, we wrote an article about the government’s plans to introduce a banded system of probate fees that could cost 300,000 families as much as £6,000 each. Among others, The Law Society and The Society of Trust & Estate Practitioners (STEP) lobbied hard against it. The new system was due to come into force next year but has been quietly scrapped. Hoorah!

Here’s the original announcement: Why won’t grown-ups make a Will?

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100