Do not ignore Will Trusts!

For Private Client legal practitioners working in the digital era, the fashion for “do it yourself” probates online have created a new problem area for us to advise on: unadministered Will trusts. 

A lot of people are submitting applications for probate themselves without the help of an advisor, only to discover years later (and often too late) that they had ignored or misinterpreted a Will trust contained in the Will. This can lead to many problems such as lost Inheritance tax allowances resulting in surprise Inheritance tax bills for your heirs, penalties from HM Revenue and Customs, incorrectly distributed assets and a lot of avoidable stress for all concerned.

This problem area usually becomes known unexpectedly and is usually unwelcome news. 

The classic example is a married couple, where the first spouse passes away. The surviving spouse incorrectly assumes that they have inherited everything in the Will, failing to take legal advice. Years later, they wish to move house or pass away themselves, and at that point the first spouse’s Will is brought to the attention of lawyers for the first time. 

We find that we are often advising on the unadministered trust when the family are experiencing stressful circumstances such as there being an urgent deadline (due to an impending house sale and purchase) or going through a bereavement. 

The unwelcome advice and complications associated with having to deal with a surprise trust in those scenarios can be a heavy burden to bear. At that point both the client and lawyers will be under time pressures to try and deal with the trust and the remedies available will be more limited.  Additionally, the costs involved with resolving the matter are likely to be more than they would otherwise have been, had timely advice been taken in the first place.  

The solution is a simple one: obtain legal advice and help to interpret the Will at the outset. Depending on what type of trust is included in the Will, different steps will need to be undertaken. The first things to ascertain are who are the trustees of the trust, who the beneficiaries are and what assets (such as cash, investments, or property for example) does the trust own. Once this is established, you can then review the type of trust you are presented with. 

The two most common types of Will trusts are: 

• life interest where one person has the right to enjoy the assets of the trust for their lifetime but, ultimately, the assets pass to other beneficiaries. These types of trust are often present after a second marriage or for people trying to plan for the payment of care home fees

• discretionary trusts: the trustees have discretion to benefit a group of beneficiaries, but no single person is entitled to solely benefit from the trust. Discretionary trusts are often included in Wills to offer flexibility for Inheritance tax planning for individuals with business or farming assets or when vulnerable family members are set to inherit the assets. It provides a flexible protective umbrella in a multitude of circumstances. However, trustees will need to be proactive if one of these trusts is present in the Will, as HMRC only allow a two-year window for trustees to decide whether to keep the trust or end it without there being any negative Inheritance tax consequences. 

Both types of trusts will need attention and should not be ignored or overlooked. Trustees have other obligations such as registering the trust with HMRC on the Trust Registration Service, investing trust assets and having periodic meetings to review the trust and ensure it is running smoothly.

So, the moral of the story is: take advice! Something as straightforward as an initial phone call or consultation with a private client lawyer can avoid future problems for you and your family. If you are unsure whether a Will contains a trust, it is best to check.

For further advice please contact our Private Client Team via email: cah@hughes-paddison.co.uk or call 01242 574244