Wills and Trusts

One of the most important things you can do is set your life cover into trust, however only about 6% of the population do (1). The other 94% could be facing a potential tax bill of 40% on their life cover. I am sure you would agree that it feels we pay too much tax when we are alive the last thing you want your family to do is pay tax on the money that was planned to help them manage financially if you were to pass away. By setting up your life cover in trust, we can help you to not only avoid taxes when you die but also ensure that your loved ones get the money straight away. A trust does not interfere with your will as it only deals with your life cover whereas a  Will is there to cover all other avenues regarding your estate. 

1. http://www.ifaonline.co.uk/

What is a Trust?

A Life Insurance trust allows you to choose who you want the money to go to in the event of your death, it is referred to as ‘writing in the trust.’ In writing your policy into trust ensures that the potential life pay-out is ‘ring fenced’ from the rest of your estate and in the event of your death, the pay-out should be free of inheritance tax so your family will get the full amount. 

When you place an insurance plan into trust, you become the Settlor and by putting your plan into trust, you are ensuring that your loved ones receive their pay-out much sooner than they would if they were required to wait for a Will to be read or Probate to be completed but as an insurance policy does not form part of your estate this is not required and therefore the sum assured can be paid promptly. 

With a trust you also get to choose who gets the money in the event of your death.  The recipient of the money is called a Beneficiary.  A trust comes into force on your death; and as you are no longer there to explain what you would like to happen to the money, you have to appoint Trustees to act on your behalf.  The role of the trustee is very similar to an Executor on a Will.  The Trustees will ensure the Life Insurance money is given followed to your exact wishes.

With a trust it means the people you want to get the money receive the money, rather than having to follow the Intestacy rules without a trust.

What Types of Trusts are there?

The types of trust available to you are as follows;

  • Trust request fixed whole: This plan is for life only plans and can only be done before the plan has started. Once the policy has been placed in trust, it cannot be changed.
  • Trust request fixed split: This plan is for life and critical illness plans and can only be done before the plan has started. Once the policy has been placed in trust, it cannot be changed.
  • Trust request flexible split: This plan is for life only plans and can only be done before the plan has started. Once the policy has been placed in trust, it cannot be changed.
  • Trust request flexible split: This plan is for life and critical illness plans and can only be done before the plan has started. This trust can be changed.
  • Trust deed fixed whole: This plan is for life only plans and can only be done after the plan has started. Once the policy has been placed in trust, it cannot be changed.
  • Trust deed fixed split: This plan is for life and critical illness plans and can only be done after the plan has started. Once the policy has been placed in trust it cannot be changed.
  • Trust deed flexible split: This plan is for life only plans and can only be done after the plan has started. Once the policy has been placed in trust, it cannot be changed.
  • Trust deed flexible split: This plan is for life and critical illness plans and can only be done after the plan has started. This trust can be changed.

What are the advantages of a trust?

The advantages of putting a plan into trust are as follows;

  • The proceeds are paid to the right person/people
  • The proceeds are paid out quickly as they do not form part of your estate
  • The trust does not interfere with your Will or Probate
  • The trust helps to avoid inheritance tax

What are the disadvantages of a trust?

The disadvantages of putting a plan into trust are as follows;

  • It is extremely difficult to alter the trust form or to take the plan out of trust in the future.
  • The control of the trust is handed over to the trustees.

Who is needed to set up a trust?

There are four people required to complete a trust. They are;

  •  The Settlor – this is the person or people who set up the trust, and put their life policy into trust. It is normally advised that the settlor also names themselves as the first trustee.
  • The Trustees – these are the people responsible for looking after the policy that has been put into trust on behalf of the person or people who will receive the money if and when the life policy pays out. 
  • The Beneficiaries - The settlor will choose who they want to benefit from the money in the event of their death. This is known as the beneficiary, there can be more than one beneficiary. A beneficiary can also be named as a trustee.
  • The Witness - The witness is an independent body who is not related to the settlor, trustee or beneficiary. They are normally there to ensure that all parties enter into the trust willingly and that the correct person signs the trust forms.

The Financial Conduct Authority does not regulate trusts.

Why is it Important to write a Will?

There is a common misconception that Wills are only required if you have a substantial amount of money or property and you wish to leave to your loved ones, however no matter what your circumstances are it is important that you make a Will. This is because a Will can ensure that your property and money is left to your loved ones, no matter what the figure is, you will probably want to ensure it will be your family that benefits.

  • If you are unmarried or have not registered a civil partnership then your partner will not automatically inherit your possessions. If your partner is living in your home and you suddenly died, your partner could find themselves homeless. 
  • If you have children you need to make sure they are looked after. Not only providing provisions for them but also you need to state whom you have chosen for them to be looked after and brought up by. The last thing you want to put your children through after the trauma of losing their parents is a custody battle between the families.
  • With a Will you can seek advice on how to reduce or avoid your potential inheritance tax liability.
  • If you took out a Will many years ago it is advisable to review it as your circumstance may have changed, you may have got married or had children so it is advisable to review your Will every few years or every time your circumstances change drastically. 

Do I need to speak to a Solicitor or Financial Adviser?

When writing a Will you do not need to rely on a solicitor or a financial adviser and can create the Will yourself if you wanted to, however it could leave you open to problems in the future. A solicitor or financial adviser can make sure your Will does exactly what you had intended it to do. Using a solicitor or financial adviser can be beneficial when setting up or amending an existing Will by ensuring that all provisions are in place and any possible misunderstandings are worked through and made completely clear. This will save your family time and potential heartache if you pass away.

Some of the most common mistakes people can make when taking out a Will are;

  • Many Wills can be classed as invalid when written by you and no help or advice has been sought from a professional. There can be a number of mistakes made which may not be noticed until the Will is read or deputised.
  • Sometimes not all of the money and possessions are taken into consideration
  • Wills can fail because there is often not enough thought put into them. What would happen if the beneficiary of your money and all your worldly possessions were to pass away before you? If you leave all your worldly possessions to your partner and they pass away before you, what happens then?
  • Many amendments are not witnessed and therefore are not valid.
  • Marriage, divorces, registered civil partnerships can all invalidate a Will.
  • Being unaware of the rules which exist in relation to a Will that can enable dependants to claim from the estate if they believe they are not adequately provided for.

A solicitor or financial adviser can also offer advice when you share a property with someone who is not your spouse or civil partner, if you have property aboard or plan to live abroad.

What should I do with my Will if I have children?

If you have children you will need to make sure they are looked after should you pass away by not only providing provisions for them in the event of your death but you will also need to choose and clarify who you would like to look after them, should the worst happen. The last thing you will want to put your children through after losing their parents is then a custody battle between the families. If you have several children and grandchildren or children from other relationships, then Proadvice would recommend seeking help to ensure the right amount of money gets paid to the correct beneficiaries.

What needs to be included in a Will?

You need to include all of your property and possessions you own in your Will, this includes any bank accounts that you may have. You will also need to think about whom you would like to benefit from your estate and what proportion of your estate you want them to have. If you have any children, you will also need to include them in your Will. In addition to all of this you also need to think about people you do not want to benefit in the event of your death. If you choose to exclude a child who you have fallen out with, they may be able to contest your Will.

When planning your Will, it is important to think of people who can administer your estate and be responsible for following through with your wishes. These are called the executors of the Will. If you are member of the Armed Forces you can make what is referred to as a privileged Will. A privileged Will can be made by men or women in active military service and require less stringent requirements, for example, a privileged will does not need to be signed in the presence of independent witnesses, in fact no witnesses are required to be present at all.

Who are Executors?

The executors are the people given the responsibility for carrying out your wishes when you pass away. The executor will have all the paperwork from your estate and ensure that all your bills, taxes and funeral costs are paid and then have the responsibility of ensuring the beneficiaries are in receipt of any money or gifts and also arranging the signing over of the property into the beneficiaries name.

When choosing your executors it is extremely important to consider whether the person has the ability to take on such a crucial task. After consideration you may decide that your partner will have too much to deal with already having just lost their partner or if you were perhaps considering a sibling, would they be able to cope with all of the official financial and legal paperwork? This needs to all be taken into careful consideration and is advisable to speak to the person you are considering to be your executor before writing your Will, to ensure they are willing to undertake the responsibility.

You can choose close friends and family to help meet the requirements set out in your Will as executors. Often some banks and solicitors will be happy to help you to prepare your Will however they often charge a fee for their assistance. In many cases they ask for a percentage of the estate rather than a set charge and this could cost your loved ones a fairly substantial amount. This is common when people advertise the offer a free Will. We are all aware of the phrase that ‘nothing in life comes for free’ and if advertised as this, you can often end up paying for it somewhere else down the line.

Who are the Beneficiaries?

The beneficiaries are the people stated in the Will who will receive the proceeds in the event of your death.

How do I make my Will valid?

Please find below our Proadvice checklist to ensure that all the points are covered when planning your Will;

  • The Will was made by someone over the age of 18
  • The Will was made voluntarily with no pressure from anyone else
  • The person writing the Will is of sound mind
  • The Will is in writing
  • The Will is signed in the presence of two independent witnesses
  • The witnesses cannot benefit from the Will

You are under no legal obligation to date a Will but by doing so you can be certain of the age of your Will should you decide to prepare a new Will in the future.

Where can you keep a Will?

A Will can be kept anywhere you wish to keep it however it is advised that you keep it in a safe place with no other documents attached to it, you must also tell people where it is kept so that it can be obtained in the event of your death. The ideal places to keep a Will would be for example, at home, with a solicitor or with a bank, here your Will can be kept safe for a fee. If a Will is destroyed by fire or is lost, it is no longer valid. If you wish to invalidate your Will then you can simply destroy it, although it has to be completely destroyed as if part of your Will survived, it may be misconstrued as being an accident.

How to change a Will?

In the future you may decide to change your Will, this is done with a codicil. A codicil is a legal document that amends, rather than replaces a Will. A codicil is used to make slight amendment but leaves the main body of the Will intact. You can make as many changes as you want to your Will, normally for a small charge. A codicil is only really used for small amendments to clauses in your Will, if there are drastic changes required; you are probably as well to make a new Will.

A new Will will automatically invalidate your old Will.

Challenging a Will?

Anyone can challenge a Will should they believe it is invalid or if they feel they have been excluded in the Will. If you can prove you been financially dependent on someone and then appear to have been overlooked and you are able to provide evidence of this, then the claim could be valid. 

Probate

If you are named in someone’s Will as an executor, then you will probably have to apply for Probate upon their death. Probate is a common term used when talking about applying for the right to deal with a person’s estate upon their death.

What happens if I do not have a Will?

Without a Will in place, your estate will go into the rules of intestacy. Intestacy normally means that the State will decide who will be entitled to your estate, in the event of your death. Only married or civil partners and close relatives can benefit from an intestate person, (a person that dies without leaving a Will). Partners who are separated but still married can still inherit from your estate under the rules of intestacy. If you were to die and have been living with your partner for a number of years yet had failed to update your Will to include them then they could get nothing.

This reinforces the sheer importance of preparing a Will.

The Financial Conduct Authority does not regulate wills.

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