Doing my Will and thinking about Trusts...

MikeyC123

Hi,

Please excuse me if this post is a bit all over the place, I've been trawling the internet for hours trying to understand a bit more about trusts when it comes to wills.

Girlfriend and I live togethor and have had a son, 12 weeks now and I want to get the wills sorted.

It was suggested to me that any life insurance policies I have I should put into trust such that their value is not included in my estate should I kick the bucket. So I have contacted Bupa and they have sent me a Discretionary Trust PPD (EP) document. Heres a copy http://www.friendslife.co.uk/doclib/cts8.pdf

I also have a SIP with friends provident, can I put that into a fund too ? using the same form. I also have a critical illness policy, can that go in, These are all for about £250k each the policies.

At work I have a pension, dependants recieve a 50% pension I think, would this count as part of my estate ? They also receive a lump sum in the event of my death, can this be redirected into a trust also, I preusme it would add to my estate ?

Finally, I have a house I rent out. I have had it for years before I met my girlfriend, 75% mortgaged. Can the deposit/house go into trust also ?

Now the next thing is, take for example the trust form I gave above. Obviously I dont list myself as a beneficiary for my life ninsurance policy (£330K). by default it lists children of the settlor etc. I have to choose trustees. My brother and my dad is easy but...and this sounds awful, should I list my partner there ? If I do what happens if 5 years down the line something went wrong and we were not togethor anymore, can I remove her as a trustee and/or beneficiary ? can these forms be editited once submitted ?

Lets say I get all my insurance policies into trust. How to I get what's not in trust into trust ? e.g. an ISA Is that something that I cant do now, but in the event of my death my executors and trustees (named in will) setup a trust, or does it have to be setup now ? do I have to name what I want to go into trust ?

Lets say from ISA's savings etc etc my estate is worth £800,000. Do they executors say, right lets put as much of this into trust as we can, lets say they put £600 in leaving £200,000 left, I think this is called my residual estate ? This can go to the girlfriend without tax so she can buy a place and be comfy/settled ?

The trustees of newly formed trust (setup post my death, or before, who knows, lol) decide that they will pay her/my son + any future children an amount each month or similar ? is that correct ? based on something I attach to my will (though they dont have to follow it) She then only has to pay income tax on this amount (trust will have already paid 50% so she can reclaim if a lower rate payer ?)

See, I said my post was all over the place. If anyone can offer me any pearls of wisdom they would be greatly appreciated.

I'm having the will drafted using willaid but just wondered also if I should look out for anything in particular, I said to solicitor want to use trusts etc, but when I said it, I'm not exactly sure how it all works.

p.s. if I setup trusts now (for exisitng policies) are there any charges if I/others havent claimed on policies ?

Girlfriend will be setting up same in reverse.

Thanks

I'm sorry it's a bit of a ramble :eek:

xylophone

I would strongly suggest that you and your partner take individually tailored advice from a solicitor qualified in wills and trusts - don't forget the need to appoint a guardian for your child in the event of your deaths.http://www.step.org/ might be worth a look.

WhiteHorse

Trusts can be very complicated and a small error can have serious consequences. Definately see a solicitor. Do not use a 'will writing service'.

xylophone

From personal experience, I can confirm that Trusts are complex, especially in relation to tax treatment.

harryhound

How much "net worth" are we talking about for each of you?
[The IHT limit of the nil rate band is £325K and legally married can leave a proportion of the estate of the first to die to the survivor and roll up the proportion of the nil rate band. (ie leave the wife everything and then she also get 100% of a nil rate band (making £650K currently should she also die).]

The "Which?" books are probably the best starting point - they do overlap a bit and be aware that Gordon Brown changed the trust rules in 2006 - the effect of which took some time to filter through to the reality of our recession economy.

This is a classic: follow that link and you get a picture of an out of date guide; then click the picture and get the latest version !!!!!!

http://www.amazon.co.uk/Which-Guide-Giving-Inheriting-Efficient/dp/1844900169

I won't presume to give you advice, because I too am struggling with the pro's and con's for my own estate. But come back here, when you have identified the sort of direction you would want to take and we can debate your situation in greater detail.

Just one final thought - you will cause all sorts of trouble if you try to exclude the child's mother.
(Best not make a will at all of you want to do that). You can outnumber her by explaining that you have three executors so there is a tie breaker - then she can mutter about the Mickey-m@fia - If the trust is a "discretionary trust" it could use its discretion to support her and the child. You have to think through what you want to happen then think about trusts and tax or you will get the tail wagging the dog.

magpiecottage

Trusts can be very useful not simply for avoiding inheritance tax but also because they can be paid without waiting for probate to be sorted. The surviving trustees need not be the executors of the Will, either.

However, to be effective for avoiding Inheritance Tax, the gift must be "without reservation" which means that you are giving it away for ever with no realistic prospect of ever getting your hands on it again.

That is not a problem with a single life term assurance policy because it is worthless until you die. However, you need to be careful if there is a critical illness (or terminal illness) benefit because you would still be alive and want it for your own use.

Most insurers now have draft trusts which create a series of different benefits some of which, if they ever come to exist, will be inside the trust and some outside.

However, whether any particular one will work for you is a complex question because they do differ from one to another.

It is also worth noting that once the policy pays out under a trust, the use of them is governed by that trust. This could mean, for example that insurance company A pays out a lump sum under a policy written under one of its template trusts which is then invested with insurance company B. The new investment is still under trust but it is insurance company A's trust deed that will decide what happens to it. There is no need for a new deed and if one drafted by company B is set up it will normally be meaningless because the original will take precedence. (This is a common error amongst Independent Financial Advisers in my experience).