Trust No-One – Why using Trusts may not be effective estate planning Planning for the future can be complex, and many people are told that putting their property into a trust is a simple way to avoid tax, care fees, or probate. However, trusts are not always the quick fix they appear to be. In this article, we explore the key risks and hidden costs of using trusts for estate planning, including how they can affect inheritance tax, probate, and ongoing administration. Before making any decisions, it’s important to understand the full picture and seek professional advice to ensure your estate is protected in the right way. Transferring Property into a Trust – Key Risks The first thing to be aware of when it comes to settling your property into a trust is that you surrender legal ownership of it. This may cause particular difficulty where you settle your home into a trust. By placing legal ownership with trustees, you may find it difficult to obtain affordable home insurance or face complexities and greater costs when selling the property. Other difficulties may occur where the trustees of the trust become uncooperative, hostile or absent. The latter has been most starkly demonstrated in the insolvency of Phillips Trust Corporation and the ensuing fallout, which has been widely reported in the press. It is not uncommon for clients to seek to settle their property into trusts to avoid the costs of care. In short, for care fees planning purposes, a trust will not legitimately work to reduce the costs of care. This is because the Care Act 2014 establishes the framework for ‘deliberate deprivation’. In short, any action taken by a person to deliberately deprive a local authority of assets, which would otherwise be able to be assessed for the costs of care, will be taken into account irrespective of the legal ownership of those assets. Using Trusts to Avoid Probate Some clients make use of trusts to avoid the need to obtain a Grant of Probate on their death. Professional advice should always be sought to ensure that this does not have unintended consequences. It is often the case that a settlor (the person setting up the trust) settles their home into a trust without receiving anything in return (i.e. a gift) but continues to live in the property without paying a market rent to the trustees of the trust. This is known as a “gift with reservation of benefit”. Where a Grant of Probate is required for a different asset within the Estate (e.g. a bank account or Premium Bonds), the streamlined process (where reporting to HMRC is not required) cannot be used because of the gift with reservation of benefit. This means that lengthy forms must be completed and submitted to HMRC that would otherwise have never been necessary, considerably delaying the obtaining of a Grant of Probate. This adds a significant layer of complexity to an otherwise straightforward process and may incur greater costs for your estate. Trusts and Inheritance Tax Implications Where individuals choose to settle their home into a trust, they will lose the availability of the “residence nil-rate band” – an Inheritance Tax allowance worth up to £350,000. This may create a large Inheritance Tax bill for your Estate which would have been avoidable. There is a way to reclaim the residence nil-rate band but this must be actioned within two years of death and not without significant time, effort and cost due to the complexity involved. Administration and HMRC Compliance The unfortunate reality of trusts is that, whilst they may look attractive on paper, they often require a greater level of administration than first anticipated. For example, a trust which contains an income-generating asset should have an annual tax return submitted to HMRC. This may necessitate the involvement of an accountant – an additional expense for a trust. Furthermore, most trusts must be registered with HMRC’s Trust Registration Service and there can be severe financial penalties for failing to do so. When a Trust May Be Suitable In summary, trusts can be an extremely useful tool when applied to the right circumstances. The reality is that there are few circumstances where placing your home into a trust is the right tool for estate planning. If you are considering a trust, professional advice should always be sought – at Browell Smith & Co. Solicitors, we are happy to discuss all aspects of appropriate estate planning, including mitigating Inheritance Tax and limiting liability for the costs of care. Our experts offer holistic advice and provide a tailored solution for all shapes and sizes of estate, for people from all walks of life. Contact us today to arrange your free initial consultation by phone 0191 691 3417 or email probate@browells.co.uk.
Trust Me, I’m a Robot – AI Wills Can You Really Trust AI to Write Your Will? Artificial intelligence (AI) is a powerful tool which is fast becoming an indispensable facet of modern life. However, as is often the case with other forms of “homemade Wills”, it may not be wise to rely on a Will drafted by AI technology. The Hidden Risks of AI-Generated Wills Cost vs. Quality: Is It Worth the Savings? Whilst convenient and significantly cheaper than a professionally drafted Will, using AI to draft your Will is a good example of the adage that “you get what you pay for” Lack of Personalised Legal Guidance There are several benefits to a professionally drafted Will, principal among which is the opportunity to meet with an experienced professional who has the ability to draw on their interdisciplinary knowledge of the law in order to provide holistic advice on how your estate ought to be structured. Estate Planning Isn’t Just Form-Filling Oftentimes, people consider that drafting a Will is simple and that can often be true in respect of the actual drafting of the document. The complexity of drafting a Will is understanding the multitude of legal quirks which comprise proper estate planning. Why Poorly Drafted Wills Could Lead to Family Disputes Ambiguity is often the greatest cause for litigation in respect of legal documents, including Wills. The use of AI, rather than a suitably qualified professional, risks lengthy disputes after your death, causing significant delay and unnecessary stress for your family and those involved in the administration of your estate. The final consideration is compliance with the Wills Act 1837. In order to be validly executed, Wills are subject to strict witnessing requirements. A failure to properly observe these requirements may result in the Will being declared invalid and your estate being administered as if you left no Will. How Our Team Can Help A Comprehensive, Professional Will Service At Browell Smith & Co. Solicitors, our comprehensive Will-drafting service includes:- A free initial consultation to determine the composition of your estate; The benefit of our professional experience and judgement, including the ability to advise on complex Inheritance Tax matters and care home fee planning; Peace of mind that your Will has been correctly signed and dated using two professional witnesses; and Secure storage of your executed Will. Contact us today to arrange your free initial consultation by phone 0191 691 3417 or email probate@browells.co.uk.
Only 1 in 4 Pet Owners Include Their Pets in Their Will, New Census Reveals Only 26 % of people over 30 have provided for their pets in their Will, and 59% didn’t realise their pets are legally considered assets according to a recent census completed by Censuswide on behalf of The Association of Lifetime Lawyers. This lack of awareness could leave thousands of beloved animals at risk when their owners pass away. Are Pets Considered Property in a Will? Yes. Under UK law, animals are generally considered property, or ‘chattels’. This means that a pet owner is free to care for their pet in any way they see fit (provided that this treatment does not cause unnecessary suffering). Animal owners are also able to sell their pet at any time. This is often beneficial and offers pet owners a lot freedom with how they deal with their pets. While this legal definition allows flexibility for owners during their lifetime, it can create serious problems when the owner dies, especially if there’s no plan in place for who will take custody of the pet. The Growing Importance of Pet Custody in Estate Planning Animals are not capable of possessing money or property and therefore cannot be left anything to inherit in a Will. It is therefore essential that pet owners specify in their Will who they would like to care for their pet when they pass away. Once a pet owner has decided who will care for their pet, it is also possible for them to ring-fence money in their Will so that it can only be used for the continued care of the pet. In addition, pet owners should recognise the importance of reviewing their Will regularly to ensure that it covers any new pets that may join them during their lifetime. The Risks of Not Planning Ahead Failing to make legal arrangements for your pet could result in: Unwanted pet custody outcomes (e.g. pets being passed to shelters) Family conflict or legal disputes Stress or trauma for your pet during an already difficult time By acting now, you ensure your animal companions are protected and cared for in line with your wishes. How to Legally Provide for Your Pet in a Will At Browell Smith & Co. we understand the importance of keeping your pets safe and cared for when you pass away. That is why our specialist legal team are able to advise clients on all of the possible options regarding their pets, so that you can choose the best option for your particular situation. Contact our friendly team by phone 0191 691 3417 or email probate@browells.co.uk.