What Type Of Trust Will Would I Need If My Estate is Worth More Than £2m?
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Why make a Triple Trust Will?
A Will with just a Flexible Family Trust is designed to secure all the estate assets on death.
However, the Residential Residence Nil Rate Band (RNRB) extra tax allowance (the aim of which was to make it easier for you to bequeath the family home to your direct descendants without being unduly taxed) is not applicable to Wills with this single Trust. This means we add an additional Trust to protect this.
For those with estates over £2m we also require a third protective Trust to offset the RNRB taper for large estates.
How does a Triple Trust work?
A Triple Trust Will is designed to prevent assets from being lost to pay Care Fees, on remarriage of the survivor (or due to “unwise” decisions), or on your children’s divorce and to give your descendants the opportunity to save Inheritance Tax on a generational basis.
The first Trust puts the amount of the tax free IHT allowance (currently £325k) on first death into a Nil Rate Band Discretionary Trust which reduces the size of your joint estate on second death, making it more likely that you will qualify for the full RNRB IHT allowances.
The second Trust puts £175,000 worth of the property owned by the first to die in a trust which is then held for the survivor for his or her lifetime, which on their death then goes to the children (or other chosen beneficiaries) directly.
The third Trust puts everything else in a trust which is held for the survivor for his or her lifetime but which on their death then become the assets of a Discretionary Trust.
Inheritance tax (IHT) rules for large estates over £2m are largely the same as other estates apart from the Residence Nil-Rate Band. In this case if the estate is worth more than £2m, the remaining spouse will see their RNRB tapered by £1 for every £2 that the deceased’s net estate exceeds £2m.
This means that depending on the value of the estate over £2m, the IHT allowance on the family home could be reduced significantly or even to zero and the joint Nil Rate Band returns simply to the combined sum of a couple’s individual nil-rate bands or £650,000.
Nil Rate Band Discretionary Trust (First Trust)
The First trust puts the amount of the tax free IHT allowance (currently £325k) into the sort of trust which reduces the size of your joint estate on second death, making it more likely that you will qualify for the full RNRB IHT allowances. This is a Discretionary Trust holding assets which can be loaned to the surviving spouse.
Property Trust (Second Trust)
This Trust leaves all or part of your property directly to your children (or other direct descendants) on the second death. The Trust is known as a Property Trust.
The first of you to die puts these assets into a trust which keeps them safe from being used to pay care fees or being lost on the survivor’s remarriage. The proceeds from the Property Trust are inherited directly on the second death, thus qualifying for the Residence Nil Rate Band allowances.
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Flexible Family Trust (Third Trust)
If the first of you to die puts their assets into a trust, this will keep them safe from all the circumstances described above as they will never become part of the survivor’s estate. The trust is known as the Flexible Family Trust (also known generically as a Flexible Life Interest Trust or FLIT).
By leaving the survivor a life interest in the use of the deceased share of the main residence, they remain secure in the family home. Likewise, a life interest in the income from the other assets in the deceased trust gives the survivor security of income.
On the second death, the children will be able to protect these assets from being lost in the event of divorce or bankruptcy and then leave the assets to their grandchildren and great-grandchildren free of inheritance tax. The trust can continue for 125 years.
What are the benefits of a Triple Trust Will?
Family assets including the family home can be protected from Local Authority care fees.
Your children’s inheritance can be protected from passing to the children of a new spouse or becoming diluted with that of any future spouse and their children.
Your children’s inheritance can be protected from their ex-spouse’s family if they divorce.
Your children’s inheritance can be free of Inheritance Tax even if they are already over the Inheritance Tax threshold.
It is more likely that you will qualify for the full RNRB IHT allowances.
How do I know if a Triple Trust Will is right for me?
If you would like more information or would like to discuss this with one of our expert Consultants, our advice is completely free of charge (we apply a fee only if you proceed with the agreement to prepare the necessary legal documents for you).
