Is a Will Trust worth the admin ?

Carinae

My parents are considering setting up as tenants in common and adding a Will Trust where my brother and I become beneficiaries of half of the house and other assets upon the death of the first parent (probably my dad as he is in poor health) but that the other parent (probably my mum) will be able to live in the house until their own death. We understand that this could ring-fence some of their assets from care home fees. Whether this is morally right or wrong or even necessary is another discussion.

My father has Parkinson’s and my mother (his main carer) had cancer before that. In all honesty we have been asking them to spend their savings for years but they are frugal and have had little opportunity except for the odd cruise. We would like at least to be able to retain some control of their assets so that Mum finally gets some enjoyment from them rather than it being taken by a local authority. In truth much of it may get spent on carers in the end but at least Mum can choose where and how.

I understand that a Will Trust gives Mum extra reassurance that she can stay in the house whatever happens and I believe that it would still mean that the whole house was eligible for Private Residence Relief if it is ever sold by her.

Given that their total estate is under the IHT threshold I am trying to work out the pro’s and cons of setting up the Will trust.

If they are tenants in common and the Will just stated that the assets of the parent that dies first came directly to my brother and I then what are the implications? Is it just a lot easier to deal with? We would just register our ownership with land registry. We would always look after Mum and she would be able to stay or do whatever she wanted with the house. Can we just write that as a line in the will without having a trust? Would we have to charge her rent? Would we have to pay Capital Gains tax if she ever decided to sell the house? The house is only worth about £260K so any gains are not likely to be over two CGT allowances of £11.7K so perhaps this is not a concern anyway?

What are the administrative duties of looking after the Will Trust? If it just contains the property then would we only need to file some sort of annual return? If Dad’s share on the money is in it I believe the interest can be paid to mum net of tax meaning no accounts need to be prepared? Is it difficult to open trust bank accounts that pay a decent rate of interest? Could we invest any money in say bonds instead so she had a better return?

Is there any other advantage in setting up a Will Trust? Or is the admin just too onerous?

I am divorced and my assets are over the single person IHT threshold (due to the house). There are various reasons why we would not want half the house going to my children just yet though but down the line that might be a better option. If my Dad has died and there is a Will Trust set up is there any way I can replace myself as a beneficiary with my children?

Apologies for so many questions and thank you in advance for any guidance you can provide.

Yorkshireman99

Carinae wrote: »

My parents are considering setting up as tenants in common and adding a Will Trust where my brother and I become beneficiaries of half of the house and other assets upon the death of the first parent (probably my dad as he is in poor health) but that the other parent (probably my mum) will be able to live in the house until their own death. We understand that this could ring-fence some of their assets from care home fees. Whether this is morally right or wrong or even necessary is another discussion.

My father has Parkinson’s and my mother (his main carer) had cancer before that. In all honesty we have been asking them to spend their savings for years but they are frugal and have had little opportunity except for the odd cruise. We would like at least to be able to retain some control of their assets so that Mum finally gets some enjoyment from them rather than it being taken by a local authority. In truth much of it may get spent on carers in the end but at least Mum can choose where and how.

I understand that a Will Trust gives Mum extra reassurance that she can stay in the house whatever happens and I believe that it would still mean that the whole house was eligible for Private Residence Relief if it is ever sold by her.

Given that their total estate is under the IHT threshold I am trying to work out the pro’s and cons of setting up the Will trust.

If they are tenants in common and the Will just stated that the assets of the parent that dies first came directly to my brother and I then what are the implications? Is it just a lot easier to deal with? We would just register our ownership with land registry. We would always look after Mum and she would be able to stay or do whatever she wanted with the house. Can we just write that as a line in the will without having a trust? Would we have to charge her rent? Would we have to pay Capital Gains tax if she ever decided to sell the house? The house is only worth about £260K so any gains are not likely to be over two CGT allowances of £11.7K so perhaps this is not a concern anyway?

What are the administrative duties of looking after the Will Trust? If it just contains the property then would we only need to file some sort of annual return? If Dad’s share on the money is in it I believe the interest can be paid to mum net of tax meaning no accounts need to be prepared? Is it difficult to open trust bank accounts that pay a decent rate of interest? Could we invest any money in say bonds instead so she had a better return?

Is there any other advantage in setting up a Will Trust? Or is the admin just too onerous?

I am divorced and my assets are over the single person IHT threshold (due to the house). There are various reasons why we would not want half the house going to my children just yet though but down the line that might be a better option. If my Dad has died and there is a Will Trust set up is there any way I can replace myself as a beneficiary with my children?

Apologies for so many questions and thank you in advance for any guidance you can provide.

Despite what others my say this just illustrates how crucial it is that all involved get paid for advice. You need a solicitor who is a STEP member. There is no way that you can DIY this no matter how many links you follow.

Carinae

Hi Yorkshireman99,
Thank you for your reply (and so late in the evening!)
My parents actually had an Estate Planner from the Co-op come to visit and she suggested the Will Trust. I telephoned her to find out more information but she could not really answer the questions I had above.
OK it sounds like I need to look out a STEP solicitor....good advice.....hopefully they will understand the tax side of things too.
Thank you again....much appreciated.

Keep_pedalling

Personally I would not do it, as I want to be self funding and never rely on the over my dead body type home I might end up in if the LA have to pay.

You parents house is protected as long as one of them is still living there, so if you father had to go into care tenn the house would not be included in any assessment for SF.

Carinae

Thanks Keep Pedalling, yes I agree. It was more the problem if Mum ever needed to go into care down the line. But it sounds like we could just insist that she stays in the house and we could pay for carers to come in. If I brought her to live with me then I guess that would just mean she would need to sell the house first as she would no longer be living there? Or perhaps we would be able rent it out to help pay for any carers needed here.
We are probably over complicating it but want to make sure we do our best for them. STEP advice sounds like the best course of action.

SevenOfNine

STEP member solicitors aren't cheap & usually charging by the hour, so make a list of exactly what you hope to achieve before you go, so the solicitor can make appropriate suggestions & help you weigh up pros/cons. (Having met three, that was pretty much the first words out of their mouths.)

Have you already done the LPAs for them both? If not set them up yourself on-line, very easy & no need for the solicitor to do that - though it will be suggested no doubt.

I think Mojisola has a life interest in a property trust, along with a few others on here so may be along later to advise.

Depending on what your parents decide, it's possible that 'further down the line' if/when you inherit, you could consider a Deed of Variation for all/part of your 'share' in favour of your offspring, instead of trying to incorporate too many 'if' situations in your parents Will now.

Carinae

Thank you SevenOfNine, that's useful to know. Yes it is definitely good to go prepared to a solicitor! Yes we have done the LPA's ourselves online.... loads of pages but fairly straightforward if you are methodical about it.

I knew about Deeds of Variation but had not thought about them properly. It is in fact very interesting and I have found a good website called Croner-I which gives useful information.

A (very) basic summary seems to be:

1. you have up to 2 years after someone dies to vary their will
2. you can vary “out” of a trust or “into” a trust
3. you cannot sever a joint tenancy in a will (this has to be done by signing a tenancy in common during your lifetime)
4. however, if there was a joint tenancy, the surviving spouse could vary his inheritance by redirecting one half of such previously jointly owned assets, say, to the children
5. varying into a trust – the redirection is treated as if it was made by the deceased and the person doing the redirecting can be a beneficiary under the trust. The redirection would give rise to a capital gain (since date of death) but the redirecting beneficiary could elect for the new owner under the variation to inherit all the capital gain since death.
6. In some cases it is better to set up the wills properly first rather than relying on a deed of variation as it could be construed as deliberate deprivation of assets. See extract below.

So….the more I read, the more complicated I realise it is and that good advice is necessary unless I had a spare lifetime to learn about trusts!!

I think doing the tenancy in common paperwork is our next step and then getting some sort of will in place….at least there would actually be something to vary then!

Thanks for all your guidance. Very much appreciated.

Extract from Croner–I …….

Desire to avoid local authority care charge
If there was a desire to reduce the value of assets in the surviving spouse’s estate so that less was available to a local authority in the case of a financial assessment for care provision, leaving assets to a discretionary trust rather than to the spouse outright might be considered.
In the case of a private residence, the splitting of a joint tenancy into a tenancy in common (coupled with the use of a nil rate band debt or charge scheme where IHT is an issue) could provide effective planning because the value of the surviving spouse’s estate on second death would then be considerably reduced. However, extreme care should be exercised if it was intended to carry out this planning via a deed of variation.

Example: George and Dorothy

George and Dorothy are both in their early 70s. Their main asset is their house, which is worth £250,000. They are concerned that should one die and the survivor go into care, then the house will need to be sold to meet care costs and so deprive their family of their inheritance.
George and Dorothy could split legal ownership of their property on a tenancy in common meaning that, on the first death, that person’s interest could pass into a discretionary trust under which the survivor is a potential beneficiary. Because the survivor would only have a 50% outright interest in the property, this would mean that the value of that interest would be severely reduced for the purposes of the local authority financial assessment on care costs. In turn, because half the house is held in trust, this would mean that it would be unlikely that the house would have to be sold to meet costs.
If George and Dorothy wished to carry out this planning they should do so by including a provision in their wills during their lifetime. If the survivor split the joint tenancy after the first death and used a deed of variation to redirect the deceased’s interest to a discretionary trust, this could be construed as deliberate deprivation (see Chapter 21). This is because the rules on variations create a fiction which only applies for inheritance tax purposes.

Carinae

My parents actually signed a tenants in common document donkeys years ago which we still have but I don't think they thought it needed sending in anywhere in those days.

Should they attach that to the SEV they send in? Not sure if they need to as they will tick box A (application is by all the registered proprietors) but it might be helpful I guess.

Dox

If you're going to be paying for the care (or carers) yourself/from family funds, the local authority is irrelevant - they would only come into the picture if you try to seek financial help from them towards your mother's care.

Keep_pedalling

George and Dorothy could split legal ownership of their property on a tenancy in common meaning that, on the first death, that person’s interest could pass into a discretionary trust under which the survivor is a potential beneficiary. Because the survivor would only have a 50% outright interest in the property, this would mean that the value of that interest would be severely reduced for the purposes of the local authority financial assessment on care costs. In turn, because half the house is held in trust, this would mean that it would be unlikely that the house would have to be sold to meet costs.

I do not believe that is correct they would still be dreamed to have assets to the value of half the house as far as the LA were concerned, and unless you have substancial other assets to self fund the house would still need to be sold.

noh

Keep_pedalling wrote: »

I do not believe that is correct they would still be dreamed to have assets to the value of half the house as far as the LA were concerned, and unless you have substancial other assets to self fund the house would still need to be sold.

Half a house has a value of close to zero to a willing buyer on the open market. That is the amount the local authority would take into account.