Trusts

An Accumulation and Maintenance Trust will provide funds for your children in the event of your death. It directs the Trustees to provide the nominated Guardians with sufficient monies to care for your children until they reach 18 years old (or an age stipulated by you) when they can inherit. Note that if the inheritance age is over 18, there will be additional taxes to pay (budget 2006 law change).

The Discretionary Trust is often used by families who have a relative with a learning disability and allows them to set up financial arrangements to help support this family member. This support could include provision for one or more of the following items:

• A way of managing assets or money

• Owning and maintaining a property for the disabled relative

• Paying for goods or services the statutory services may not be able to eg. additional care, holidays or new clothes

• A way of arranging the inheritance details

• To ensure care funding or other state benefits are not reduced, withheld or cease

The important thing to remember with a Discretionary Trust is that the Trust is the beneficiary of the estate – not the individual. The intended beneficiary can receive gifts or payments, but it is the Trustees who are in charge of the assets and who determine how the monies will be spent. Also key is that one person cannot be a sole beneficiary of a Discretionary Trust. Ask your Making A Will advisor for full details on this Trust if you think it may be applicable to your situation.

A Fixed Trust names the beneficiaries and sets out the exact amounts to pay each individual. For example, this could be used if you had 3 children and you wanted the Trust to divide 60% of the assets between two children and give 40% to the remaining child.

An Interest in Possession Trust can be used to ensure your spouse is adequately provided for in the event of your death and keep the estate intact for your children. For example, in your Will you leave the family home to your spouse for the remainder of their lifetime; however, they must pass it on to your children when they die.

Important – this Trust is only relevant for unmarried heterosexual couples and same sex partners who are not civil partners. All figures below are based on tax year 2009/10.

An IOU Trust can save up to £325,000 from being liable for IHT for partners who have a joint estate worth over £650,000. This is achieved by each partner including IOU trust wording in their Will. This directs that on the first partner’s death, the portion of their estate up to the IHT Nil band limit (ie. amount under £325,000) will pass to the Trust rather than the surviving partner. (Any balance over this amount goes to a beneficiary of their choice.)

When the second partner dies as long as their estate is valued for IHT purposes at the nil band rate, it will not be liable to IHT. Therefore it can be left to the beneficiaries in its totality. The remaining amount placed in the IOU Trust is then assessed independently. As it is below the nil band rate it will also be free from IHT, therefore the total amount will go to the beneficiaries.

This trust is designed to protect beneficiaries from losing part of their inheritance if the following situation should arise. If one partner dies and the surviving partner subsequently needs to go into care, the local council can enforce the sale of the property to pay for their long term care. If you and your partner each put a provision in your Wills stating that when you die, your share of the property is placed in Trust for children or other beneficiaries (rather than passing to the surviving partner) then the property is safe from a Council’s grasp. It is important to remember that it is illegal to deliberately avoid paying Council care costs by transferring your property, so take advice from your Making A Will Adviser if you want to set up this Trust.

The Trust for Disabled Beneficiaries is a type of a Discretionary Trust which has special tax exemptions for beneficiaries with a disability. This Trust is often used to hold the compensation payments of people who are disabled due to personal injury.