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Flexible Family Trust Guide On Death
This podcast relates to our Flexible Family Trust Wills which covers the problems and solutions for couples with children who want to protect the family and the bloodline.
Today, Ian Winterbotham explains what happens to the Flexible Family Trust on death.
What are the circumstances in which family assets can be lost unnecessarily?
The four most common circumstances are where the assets are used to pay for care fees; are lost on the survivor’s remarriage; are lost on the children’s divorce, or used to pay inheritance tax. The last one only applies to inheritance tax paid by your children, your grandchildren or further down the bloodline.
What if one of you dies and the survivor must go into care?
In these circumstances, all the family assets including the family home can be used by the council to pay the care fees. That’s unless you have severed the tenancy and put part of the property, usually half, into a Trust created on death by a Flexible Family Trust Will. These are also called generically Flexible Life Interest Trust Wills.
What if one of you passes away and the survivor were to remarry?
This can cause problems for your children’s inheritance, as the estate may 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. The solution is to get advice and create a Trust Will.
What happens if your children divorce?
In these circumstances, if you’ve left all your assets to your children, they may end up in their ex-spouse’s family. Some unhappy marriages can be brought to an end by one partner receiving a direct inheritance.
To avoid what you’re leaving your children ending up going sideways, and not down to your grandchildren, you can create a Flexible Family Trust Will.
What if your children inherit from you directly and they are already over the inheritance tax threshold?
They may have to pay inheritance tax on your assets when they die, even if these have already been taxed after your death. Again, it’s not what everybody wants.
How can I protect our family assets from these problems?
If you are married or in a civil partnership, and the first of you to die puts their assets into a Trust, this will keep your family safe from all the circumstances we’ve talked about, as they will never become part of the survivor’s estate.
This Trust is known as the Flexible Family Trust. By leaving the survivor a life interest in the use of the deceased’s share of the main residence, they remain secure in the family home. They can move home if they want, and take the Trust money with them to use as a deposit on a new property.
Likewise, they gain a life interest in the income from the other assets, maybe investment properties, stocks and shares or ISA cash accounts. A life interest in the income from these assets gives the survivor security of income.
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What happens on the first death?
The executors of the Will need to obtain a Grant of Probate in the normal way. Upon the first death of a spouse or civil partner, the Trust will be implemented, which means half of the property plus the assets of the deceased will be owned by the Trust.
If appropriate, the property will be put into the names of the Trustees at the Land Registry. You might have your husband or wife as one of the Trustees and your children as the other Trustees.
Their names can be added at the Land Registry, but it doesn’t mean your children will own half of the property. It just means that they will have to sign documents if the local authority took an interest in the property, or they wanted to protect their inheritance for the bloodline.
Will the survivor have use of the property and money?
The answer is yes. That’s a very fundamental question and is extremely important. People don’t make these Wills with the intention of giving up their assets.
The answer is yes. Many clients choose to have the cash assets and the investment assets, loaned back to them so they can use them and invest them how they wish.
By doing this, the cash or investments will still be owned by the Trust, but out of the survivors’ estate. This is done by a loan agreement being drawn up.
However, you as the survivor can still sell the property and move with the consent of your fellow Trustees. In fact, the Will says that the Trustees must follow your wishes.
What if I don’t want to use the cash?
You could simply leave it in the Trust and access it with the consent of all the Trustees whenever required. However, it’s still recommended to accept a loan of cash from the Trust. You can then invest the money and let it grow.
What happens on the second death?
If the second Will remains as written, and is not updated or changed, the Trust in the second Will would take the rest of the property and other assets of the second person to die, and will continue as a discretionary Trust until the Trustees decide to disband it. This discretionary Trust can last for 125 years.
The potential beneficiaries will usually be the children, the grandchildren, and any further descendants during those 125 years.
Will I incur any future charges in the Trust?
Only after the death of the second person, and only if there is more than £325,000 in the Trust. Then, there is a 6% charge every 10 years on anything over this £325,000 threshold.
If the Trust is disbanded before the 10-year anniversary, even if it’s got millions in it, this 6% charge is not applicable.
Do the Trustees need to do anything more or make decisions on the properties or cash?
Once the process is complete, the Trustees only need to have a brief meeting once a year to consider the nature of the assets going forward and the needs of the beneficiaries. There may be a need for a special meeting if the property is being sold or money is to be appointed out to some of the beneficiaries.
What happens if the Trustees no longer wish to continue the Trust?
You and the Trustees can disband the Trust if you wish whenever you choose. The surviving spouse would normally be a Trustee, so decisions need to be made unanimously.
The surviving spouse is really in control as they’re the only beneficiary at that time.The estate would then be distributed to the beneficiaries according to the Will.
Just as background, the generic term for a Flexible Family Trust Will is a Flexible Life Interest Trust Will FLIT. We will be answering more questions about this type of Will in a podcast entitled Flexible Life Interest Trust Guide on Death.
The information given is not complete and you should seek guidance and help from a professional before making any decisions.
