When it comes to estate planning, creating a comprehensive Will can be vital to ensuring that your assets are distributed according to your wishes. One powerful tool that plays a crucial role in effective estate planning is the trust. Trusts offer flexibility and control over the distribution of assets while allowing individuals to protect their loved ones and minimise any tax implications.
At SLS Wills and More, we understand the importance of tailoring estate planning solutions to meet our clients’ unique needs. In this article, we will explore two commonly used types of trusts in Wills in England and Wales: Life Interest Trusts and Discretionary Trusts, with a special focus on Vulnerable Person Trusts which is something we’re seeing a lot more.
Life Interest Trusts:
A Life Interest Trust, also known as an Interest in Possession Trust, provides a beneficiary (known as the life tenant) with the right to receive income from the trust assets during their lifetime. Upon the life tenant’s death, the trust assets are then distributed to one or more ultimate beneficiaries (known as the remaindermen).
Key features of Life Interest Trusts include:
a. Preserving assets: Life Interest Trusts can help protect the value of assets by preventing beneficiaries from misusing or depleting them.
b. Flexibility: The settlor (the person creating the trust) has the power to determine the beneficiaries of the trust after the life tenant’s death.
c. Care for dependents: Life Interest Trusts can be particularly useful in cases where the life tenant wants to ensure that their spouse, partner, or children are provided for after their passing.
Discretionary Trusts:
Discretionary Trusts provide the trustees with significant discretion in distributing trust assets to beneficiaries. Rather than specifying fixed entitlements, the settlor grants the trustees the authority to make decisions based on the needs and circumstances of the beneficiaries.
Key features of Discretionary Trusts include:
a. Asset protection: Discretionary Trusts can be effective in protecting assets from creditors, divorce settlements, and potential financial mismanagement by beneficiaries.
b. Tax planning: Discretionary Trusts can help manage inheritance tax (IHT) liabilities, as the assets held within the trust are not considered part of the beneficiaries’ estates for IHT purposes.
c. Beneficiary flexibility: Discretionary Trusts cater to changing circumstances, allowing the trustees to adapt distributions based on changing needs or unforeseen events.
Vulnerable Person Trusts:
Vulnerable Person Trusts are a specific type of Discretionary Trust designed to protect the interests of individuals who lack the capacity to manage their financial affairs. They are often created to safeguard the assets of vulnerable or disabled individuals.
Key features of Vulnerable Person Trusts include:
a. Financial protection: Vulnerable Person Trusts ensure that the assets of vulnerable individuals are managed responsibly, protecting them from exploitation or mismanagement.
b. Means-tested benefits: By placing assets in a Vulnerable Person Trust, individuals can preserve their eligibility for means-tested benefits, as the assets are not considered the individual’s own for assessment purposes.
c. Care provision: These trusts can assist in funding care or support services for the vulnerable person while preserving their assets for the future.
Creating a well-structured estate plan involves careful consideration of various factors, including the selection of appropriate trusts. Life Interest Trusts, Discretionary Trusts, and Vulnerable Person Trusts offer unique benefits and play crucial roles in achieving your estate planning goals. The way that these trusts are drafted is also crucial and that is where we come in.
At SLS Wills and More, our team of experienced professionals are here to guide you through the complex landscape of estate planning. We can help you understand the legal requirements, tax implications, and practical considerations related to trusts, ensuring your assets pass to who you want and making sure that those you’d like to benefit from assets can do so appropriately.
For more information, book in a complimentary appointment to discuss your circumstances.