'In whom do you Trust!' | By Lynch Solicitors

We have been discussing Wills, Enduring Powers of Attorney, Assisted Decision making agreements and the Advance Healthcare Directive over the past couple of articles; let me remind you what happens if a parent dies and has not made a Will.

The surviving spouse will inherit two-thirds of the estate (or the entire estate if there are no children).
The surviving children are entitled to one-third of the estate between them. When this happens, the spouse and children often become entitled to share in the family home.
If both parents are deceased, the children will be entitled to the entire estate, divided equally.

Why is MAKING A WILL so important?
Many people underestimate the importance of making a Will.

Having these put in place can make things much easier for your loved ones.

Would you go away for a few months without leaving your keys with a neighbour or your children with a childminder?

Why would you not plan for your future care or not look after your family when you are no longer around to do it?

If you don't plan it, it won't happen. There is one certainty – we can't last forever!

Is there a particular type of Will that parents make to ensure that the children's welfare is taken care of and, of course, financially taken care of?
The recommended Will for parents of young children is a Will Trust. The usual form of Will Trust has some basic features that can be developed or changed depending on the family's circumstances.

First and foremost, like any Will, the Will Trust will appoint executors. In this instance, they will also act as Trustees.

If a trust becomes active, there will be tax implications to be considered.

In the case of a child with special needs, it is worthwhile considering setting up a discretionary Trust with the child as the sole beneficiary. Consideration has to be given to the tax implications of the Trust.

It is worthwhile to seek specialist tax advice before establishing a trust.

Discretionary trusts

A discretionary trust is a private legal arrangement whereby parents can pass assets through a trust to a trustee, who holds those assets for the child's benefit in such a manner as they, at their discretion, think fit.

Discretionary trusts can be set up during the parent's lifetime through a Deed of Settlement or on the death of the parent(s) by a Will Trust. 

In the case of a Will Trust, the executors will transfer property to the trustees, who will hold such property and any income from the such property for the benefit of the children (beneficiaries). Therefore, the child has no access or power to direct how the assets are used.

Who owns the assets in the discretionary trust?
It is the trustees who take control of the assets, but they do not personally win the assets. It is the trust that owns the assets, and it is the child or children who will benefit from the assets held in the trust.

What happens if there are properties to be transferred?

In Will Trust situations, the executors would Assent to the Vesting of the property in the Trustees, and the Trustees would apply to the Property Registration Authorities to become owners of the property as joint tenants. 

Discretionary trust tax

Generally, there is an initial charge to discretionary trust tax of 6% of the Capital value of the Trust.

An annual charge of 1% of the Trust fund arises on 31 st December each year after the Trust is set up (except for the year in which the initial charge occurs).

Where the Discretionary Trust is a protective trust for a Special Needs individual who is incapacitated/incapable of managing their affairs, the Trust may be exempt from this tax.

Where the Discretionary Trust is not protective but is for a young child, the discretionary trust tax of 6% will arise on the death of the parent(s) or when the youngest child beneficiary is 21, whichever is later.

Fixed trusts

Another form of trust is a fixed trust, wherein each beneficiary has a fixed entitlement to a specific share of or interest in the assets owned by the trust. For example, the trustees might hold property equally between children of the settlor to be paid to them upon reaching a particular age. A life interest trust is another example of a fixed interest trust, with the life tenant entitled to the income from the trust for life and the capital on the death of the life tenant being held for another beneficiary, generally referred to as the remainderman.

How would you distinguish those roles? Or what is the difference between acting as an Executor and a Trustee?
The role or function of the executor is to take all the necessary steps to obtain the Grant of Probate.

The role of the Trustee takes over once the probate has been granted, and the Trustee manages or looks after the assets until the beneficiaries reach the age when they become entitled to the assets in their own right, e.g. 21 or 23.

How do people choose Trustees?

I always say to my clients – choose someone that you know, like and 'trust'. If anything happens, you will be handing over responsibility and authority to them to look after your assets until your children are of a certain age.  I would often say to people, make sure that you are happy that that person can make the right financial decisions for your children – they, after all, will have control of the purse strings.

What powers do the Trustees have over the assets and money?

There is little doubt that the Trustee takes on a very onerous task, and they must act in good faith and ensure that they are not reckless or dishonest in their dealings with the assets.

The trustees have the power to make investments and to change those investments.

Trustees have the power to sell assets.

Trustees also said earlier that they have the power to make payments out of the estate's capital.  Those might be to cover educational expenses or medical expenses.

Carry out the appropriation of assets to beneficiaries, which is the distribution of assets according to their circumstances.  An example of how this might work would be when you have an estate made up of cash and a house.  Take this situation where there are two children, and the beneficiaries decide to give the home to one child and the cash to the other, who is not living locally and has no interest in the house.  I am assuming, for this example, that the house and money are of equal value.
You might give broad powers, e.g. to carry on a business and appoint managers for the business.

What happens in circumstances where you have a child with a disability and will never be able to manage their affairs?
In that situation, a parent would be advised to set up a discretionary trust will.  The Will directs the Trustees to use the money or assets to maintain the child or children, but the Trustees have absolute discretion on how and when the money is used, if at all. The beneficiary of the Trust will never become entitled to the funds or assets in this case.

So where do you go from here - estate and succession planning?

While making a Will is undoubtedly the first step in planning ahead, there are other issues to consider.

Estate planning is planning the transfer of assets to the next generation.

For instance, you may wish to transfer your business or farm to one of your children working in the business or on the farm.  You may want to give your children a benefit now as they start their adult lives to help get them set up.

The first step in estate planning is ensuring that you are financially secure and then planning for any benefits you can pass on to your family during your lifetime or on your passing.

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