‘Lifetime Trusts’ are becoming increasingly popular. Could you benefit from having one?

At the start of the year, I wrote an article for the Daily Echo’s Financial Page about Lifetime Trusts. Since it was the first I had written, I had no idea that I would receive such a huge response from readers seeking more information or further clarification. People were either contacting or coming to see me with the article literally in their hands, so since it obviously provided serious ‘food for thought’, I thought it would be worth revisiting the subject in light of recent concerns over the future of our economy.

The people who have come to see me about Lifetime Trusts have done so because they want to ensure that an estate they intend to leave in a Will cares for a remaining spouse during their life and is then passed on for the benefit of their children.

Making a Will is a highly emotive subject, but the main reason people do one is to ensure that their assets and estate are passed on to their loved ones. Whilst effective tax planning ensures that beneficiaries receive the maximum the law allows, in the current climate that is not always enough to guarantee they receive what was intended.

As an example, I always cite the situation of a husband who has left a marital home to his wife, intending for her to pass it on to their children. If she eventually needs to take residency in a nursing home, the wife will be forced to sell the home in order to fund her care. It is only when she is down to a limited amount of personal funds (currently £22,250.00) that Social Services will assist with the payments, leaving a fraction of the original estate for the children.

If, instead of leaving the house to his wife, the husband had put his share of the house or indeed his whole estate into a Lifetime Trust, his wife would have had rights to remain in the house and live on the interest accrued from the estate for the rest of her life but the capital would have been protected left directly to the children. In this arrangement, Social Services could not claim the capital value of the house or whatever assets were placed in the trust and the children’s inheritance would have been preserved.

Using another example, if a husband and father dies leaving his estate to a wife who eventually remarries, she can leave any assets she acquired in her first marriage to her new husband. Indeed if she made no new Will it would pass to the new husband under the rules of intestacy. If a Lifetime Trust has been put in place, his assets would have been ring-fenced for his children, irrespective of their mother’s future marital status.

Lifetime Trusts became popular in the 1950s, but then they were taxed heavily. However the scheme became tax efficient once again last October when the Government announced that when a surviving spouse died, both the personal allowance of the survivor and any unused proportion of the allowance from the first partner would be exempt from Inheritance Tax.