Double Trust Wills

What is a Double Trust Will?

It’s a Will that creates not just one, but two Trusts. We do this to ensure that assets can be protected, and that executors can claim the residence nil rate band tax allowances on second death.

The first Trust is called a Property Trust, which gives a life interest to the survivor in part of the property – usually £175,000 worth of the family home. We call the second Trust a Flexible Family Trust, which gives a life interest to the survivor in the property, plus any financial assets that were in the sole name of the first person to die. The generic term for this type of Trust is a Flexible Life Interest Trust.

How does a Double Trust Will protect assets?

There are four common areas, protecting against care fees, remarriage, children’s divorce and allowing for inheritance tax planning.

How does a Double Trust Will protect assets with regards to care fees?

You may have gathered that Double Trust Wills are aimed at married couples or civil partners. When the first person dies, half of the family home, as well as some financial assets, become assets of the two Trusts created by the Will. They give a ‘life interest’ to the surviving spouse or civil partner. 

This prevents the local authority from being able to possess the property to cover the fees if the survivor needs long-term care. Normally, without this type of Will, if one person dies and the survivor goes into care, all the survivor’s assets – including the family home – could be used by the council to pay the care fees.

With a Double Trust Will in place when the first person dies, you can protect at least one half of the value of the family home as well as some financial assets.

How does the Will protect assets on remarriage?

If one person dies and the survivor remarries, the estate could become diluted with that of the future spouse and their children. It could even entirely become the property of the children of the new spouse.

A Double Trust Will can protect at least one half of the value of the family home and some financial assets for the children, in event that you die and your spouse goes on to remarry.

It’s a very reassuring type of Will for a lot of people.

How does the Will protect assets if children get divorced?

We’ve talked about care fees and remarriage – and that is all about what happens on first death. We’re now moving on to consider what happens after both testators have died. 

If the children get divorced after receiving their inheritance, assets that have been inherited directly could end up in their ex-spouse’s family.  But if the assets are in a Double Trust Will, the Flexible Family Trust part protects them for the benefit of the bloodline. They would not be treated as an asset in any divorce settlement. 

Your children can receive their inheritance as a loan from the Trust, and they can spend or invest the money as they wish. The loan is repayable to the Flexible Family Trust part of the Will – and not to the ex-spouse if they get divorced.

How does a Double Trust Will help with inheritance tax planning? 

We’re now going even further forward in time and considering what happens on a generational basis. 

If your children inherit from you directly and they are over the inheritance tax threshold, their estate may have to pay inheritance tax on the assets that you’ve left them, even if they’ve already been taxed as part of your estate.

The beauty of inheritance tax planning with Wills is that the children can pass on assets to the bloodline and protect them from being lost through divorce or bankruptcy. The assets then pass to your grandchildren and great grandchildren free of inheritance tax.

The Flexible Family Trust part of the Will can last for 125 years and cover several generations.

What happens on first death with a Double Trust Will? 

The executors will need to obtain a grant of probate in the normal way. On the first death, the Trust will be implemented and half the property, along with any assets of the deceased in their sole name, will be owned by the Trust. If appropriate, the property will be put into the names of the Trustees at the Land Registry.

Will the survivor have use of the property and money?

Yes – they have a life interest, which is a legal right to use and live in the property for the rest of their life. They can also use their spouse’s assets to buy another property if they want to move on.

In many cases, clients choose to have the cash assets loaned back to them so they can invest or spend them as they wish. The cash they use will still be owned by the Trust and out of their own estate, via a loan agreement being drawn up. 

However, you can sell the property and move, with the consent of your fellow Trustees. We suggest that you let Will Power know if you plan to do this, so we can advise you further.

What if I don’t want to use the cash?

You could simply leave it in the Trust and access it when required, with the consent of all the Trustees. However, it’s recommended to accept a loan of all the cash from the Trust because you can then invest the money and let it grow. 

It also means there is less administration for the Trustees. Loaning all the money out of the Trust to the survivor means they get the interest in their own accounts and there won’t be any accounts to do for the Trust.

What happens on second death?

If the second Will remains written as a Double Trust Will and is not updated or changed, £175,000 would go directly to the beneficiaries – probably the children. The Flexible Family Trust part of the second Will would take the rest of the assets of the second to die. It would continue until the Trustees decide to disband it.

Will I incur any future charges in the trust?

Only after the death of the second to die – and even then, only if there is more than £325,000 in the Trust. There are two Trusts, so if there is £325,000 in either of them, there is a 6% charge every ten years. That applies on anything over the nil rate band threshold.

We suggest that your Trustees contact us for advice after nine years to review the situation. If the Trust is worth less than £325,000, there is nothing to pay.

What happens if the Trustees no longer wish to continue the Trust?

The survivor and the Trustees – or the Trustees after second death – can disband the Trust as they wish. The estate can then be distributed to the beneficiaries according to the Will.

Is there anything else we need to know about Double Trust Wills?

Just to complicate things further, for some people there can be advantages in creating three Trusts in a Will. We call these Triple Trust Wills. We’ll discuss these in our next podcast. 

It can be a complex area for a lot of people, but inheritance tax planning is something that many people are determined to get an understanding of. A core idea to have in mind is that the nil rate band amount, which is currently £325,000, appears to be the most convenient amount to hold in a discretionary Trust – whether it’s made by a Will or or through lifetime planning. 

Planning to establish a Trust holding this amount of assets – and nothing more – can mean there’s no tax to pay. This could be the key to saving tax, while saving administration costs and making life easier for your heirs in the future. 

Triple Trust Wills are aimed at couples with joint assets of more than £2 million pounds, but may be of interest to others if inheritance tax planning is the priority. If you’ve got that level of assets and you’re wanting to plan ahead and save inheritance tax down the generations, it is well worth trying to understand this, looking at things holistically. 

You can learn a lot from independent financial advisors about lifetime planning and you can learn about Will planning and saving inheritance tax from people like ourselves and solicitors.

We cover all of this in our podcasts, so to learn more about generational inheritance tax planning, have a look at our Bloodline Wills podcast. In the estate planning section of our website, you’ll find episodes exploring inheritance tax.