Will Trusts

[Jason123456]

Does this make sense?

A mirror Will is made for spouses as a Will Trust,such that on death of a spouse,their Estate is protected from Care Home costs since surviving spouse inherits estate as Trustee.
And this being the case,in order for the surviving spouse to inherit the estate with the benifits of retaining ISA status of investments etc, the surviving spouse as Trustee draws up a ‘loan note’ stating that the estate is loaned to the surviving spouse in own right (outside Trusteeship)....I presume the loan has an indefinite period.

This arrangement then is basically the same as either not having a Will,where the surviving spouse automatically inherits, or having a basic will where the Will states surviving spouse inherits.

Presumably no IHT due on first death.?.

[AnthonyR]

The trust in question could be one of two options, either a life interest trust or a discretionary trust.

If it's a life interest trust then there's no IHT on first death as the life interest is treated as part of their estate. No need to loan assets out as the surviving spouse has the right to use them for their lifetime.

If it's a discretionary trust then there would be IHT on the first death if it's over £325,000, cash could then be loaned out by the trustees and assets used by the beneficiaries.

If your aim is to avoid the use of the assets of the first to die to be used for the survivors care then both should be effective to avoid the deliberate deprivation rules for care fees. However, it's unlikely that either trust would allow the ISA wrapper to be maintained as this requires the assets are inherited by the survivor (although there is scope to distribute the ISAs directly to the spouse post death but this brings them back into the estate for care fee purposes).

I'd recommend taking formal advice from a specialist as to how your will's should be structured to avoid any nasty surprises and ensure you understand what's being put in place.

[Jason123456]

Thank you for your response...I am hoping to get a second opinion on what i have been advised is the result of a revision recently made to a mirror Will.

Rightly or wrongly?,...I have called it a will Trust because it makes the spouse both ‘Trustee’ /Executor and Beneficiary , and as previously stated the Will is worded to avoid Care Home fees being siphoned off from the deceased estate, by virtue of the surviving spouse inheriting as Trustee,thus protecting the deceased estate.

A recent revision was made to include our two sons as additional Trustees/Executors, and this was done by means of a Codicil,however we were prepared to re-write the Will to accommodate this,but also because wanted to ensure the surviving spouse was able to inherit estate in own right, and if this meant eliminating the Care Home provision,this would be acceptable to us.We were looking for something simple that ensured the estate was ‘fully’ inherited by surviving spouse, including retaining ISA status of investments, and having no IHT issues. (Joint estate value >£1m,equally divided)

Rather than rewrite a new mirror Will we were advised that our needs could be met by retaining existing Will and simply adding the Codicil to include two sons as mentioned,and in respect to the original Will, the surviving spouse in the role as Trustee would write a ‘loan note’,loaning the estate to the surviving spouse in role as beneficiary to manage as he/she wished and by doing this our needs would be met!

We are looking for a second opinion that this is correct.

I hope there is sufficient information here to receive your comments?

[AnthonyR]

Without seeing the wording of the Will it's difficult to identify exactly what it does. The fact that there is a Will Trust (which is fine as a definition as it's a trust created by a Will) doesn't actually give any information as to whether the trust is discretionary or life interest.

This arrangement then is basically the same as either not having a Will,where the surviving spouse automatically inherits, or having a basic will where the Will states surviving spouse inherits.

Common misconception - surviving spouse doesn't "automatically inherit" if there are children and no Will. Under intestacy rules the spouse gets the first £250,000 plus 50% of the residue (free of tax) with the remaining 50% passing to the children (subject to tax if more than £325,000).

Presumably no IHT due on first death.?.

If it's a life interest trust then no IHT on first death. If it's discretionary then there could be tax.

Really you need to speak to the willwriter or someone who can review the content of the Will to identify what it actually does.

[Jason123456]

Thank you for response...

‘If it's a life interest trust then no IHT on first death. If it's discretionary then there could be tax.’

How do you define a life interest trust?

[AnthonyR]

A life interest trust pays the income of a trust (or provides use of the assets) to a specified person (the life tenant) for the remainder of their life and does not provide benefits to anyone else until the life tenant has died.

You'd expect to see a line which says something like:

My Trustees shall pay the income of the Trust Fund to 'so and so' during their life

[Jason123456]

Thank you ....that makes the Will I refer to as a life interest trust....that being the case,...if said income/assets is paid to the surviving spouse,and that asset are ISA investments,will their ISA status be retained?

[AnthonyR]

ISAs are a funny beast in the sense that they are 'individual' savings accounts. Which mean they only offer tax benefits to a specific individual. There are provisions which allow ISAs to be inherited by a spouse, effectively they get a bonus ISA allowance in the year equal to the amount they inherit which allows them to contribute the inheritance into a personal ISA called the Additional Permitted Subscription (APS). However, the APS is only available to individuals and not trusts. This means that the surviving spouse would need personal funds to invest into ISAs to use the APS or alternatively the ISAs would need to be left out of the trust in the Will or if there is scope within the rules of the life interest trust it may be possible to vary the entitlement to remove the funds within 2 years to then use the APS.

It's not straightforward, so again, I'd suggest finding someone who can advise specifically on this.

[Jason123456]

Thank you ....you have confirmed my thoughts that the position wrt ISAs is not straight forward!

The examples I have seen refer to a’loan note’ as a means of getting funds out of the trust to reinvest using the APS,...which starts to get complicated.
Do you agree that this could be a method for releasing funds from the TRUST/

[AnthonyR]

Yes - subject to the trustees having the power to advance such loans - you'll need to check the trust rules within the Will.