In this article, we will be discussing the different types of Trusts that can be applied when you are looking at putting your affairs in order.
When is it a good idea to set up a Trust?
Trusts can be used for Care Home Fee future planning, estate and tax planning and to protect your assets in certain circumstances for example;
- Minor family members
- If your children are going through financial difficulties such as bankruptcy or divorce proceedings
- If any of your beneficiaries are going through health issues
- If any of your beneficiaries receive means-tested benefits
What are the different types of Trusts?
There are two main types of trusts; one is a Property Trust, and the other is a Lifetime Trust. The Lifetime Trust, however, has three separate categories and we will outline the differences below.
What is Property Trusts?
When creating a Property Trust, you first need to look at severing the tenancy from a Joint Tenancy to Tenants in Common. In doing so, this enables you to ensure that the interest in the deceased’s share can be established for the remaining spouse. This allows the share of the property to be issued to the beneficiaries once the Trust has completed.
This is the most restrictive option and only applies to the family home. The survivor will become known as a life tenant which means they will have the right to live in the family home for the duration of the Trust. You have control over when the Trust will complete, for example, you can specify that it may end on remarriage of the remaining spouse, or you may issue them with a fixed term in which they can remain living in the property. You can also opt to allow the surviving spouse to remarry and stay living in the family home. Still, they would not have any right to any of the deceased’s value of the property. Upon the life tenant’s death, the proceeds would be distributed to the children or chosen beneficiaries.
What is a Lifetime Trust?
As discussed earlier, a Lifetime Trust can be distinguished by three separate categories, which are; Life Interest Trusts, Flexible Life Interest Trusts and Discretionary Trusts.
Life Interest Trust
Lifetime Interest Trusts are the same as the above property trusts with additional benefits and a lot more flexibility for the surviving spouse. The survivor will be able to downsize if required potentially. In contrast, the previous property trusts outlined above deal specifically with the family home and do not provide the surviving spouse with the ability to move.
The survivor can use the proceeds to buy another property and can also have the benefit of receiving income from the deceased’s share of the property which can be generated by renting out the estate or reinvesting the proceeds.
Flexible Life Interest Trust
As the name suggests, a Flexible Life Interest Trust provides the remaining spouse with the most flexibility as it deals with not just the property, but any assets that are held in your sole name, and any savings and investments in your sole name. These assets can be ring-fenced alongside any property or land left by the deceased. Flexible Life Interest Trusts have the additional benefit of a right to income and capital for the surviving spouse which they can use whenever required. The surviving spouse does not own the capital as they will have a life interest in it, so it cannot be given away by them. On the death of the survivor, the trust capital is distributed to the nominated beneficiaries.
The Discretionary Trust has similar flexibility to the Flexible Life Interest Trust. It can provide a right to access income and capital from the Trust, which is at the discretion of the Trustees. Leaving the residue in this Trust ensures maximum flexibility if you are not sure who you want to benefit and have concerns about the position the beneficiaries could be in at the time of distribution.
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