Trusts have been around since the Crusades when lords and knights wanted to keep their castles out of the hands of the taxman or crooked relatives while they were away at war. At its simplest, a trust is a legal arrangement where the benefit of an asset is separated from its owner.
A Bereaved Young Person’s Trust (when a child receives a gift in a will), the testator will have to set an age at which the child can get the gift — this is usually somewhere between 18 and 25. There must be a good reason for a minor to receive a substantial inheritance at the tender age of 18. A Bereaved Young Person’s Trust will hold the asset until the child reaches the age set in the will. For this exercise, youth ends on one’s 25th birthday; beyond this date, inheritance tax becomes a serious bother.
Let us look at a case study in which this form of trust becomes relevant.
Sally is widowed. Although a homeowner, she has little else. For almost 40 years she has been the full-time carer of her son Ben, who has cerebral palsy. He gets some support from the local social services people. Sally’s worried that if she leaves her estate — the £450,000 house — to her son, it will disqualify him from the means-tested support to which he’d otherwise be entitled. When the money runs out, in about two years, he would then be eligible for means-tested benefits. She feels the inheritance would be wasted. Sally wants her inheritance to make her son’s life a bit more pleasant; his needs are basic, and his wants are few. Just to be able to go on holidays and to follow his favourite football club — Crystal Palace (Masochist!).
The solution to the problem is a Vulnerable Person’s Trust — Ben would get the benefit of the inheritance and would not be the victim of means-testing.
Several times a year I get a tearful telephone call, the gist of which is: ‘When my dad died, mum inherited everything; now she’s to go into care. We fear that the house, which is the family’s main asset, will need to be sold to pay for her care.’ Couples wishing to prevent such nonsense should write a will with life interest trust provisions, such that the deceased’s share of the house goes into a trust of which the children are the beneficiaries, but whereby the survivor has the right to live in the property. If the survivor needs to go into care, the share of the property already in trust cannot be used to pay for care.
Securing Their Future … visiting the sin [of omission] of the parents upon the children and their children ‘s children, upon the third and fourth generation. Exodus 34: 7
Each family has its own rituals. Like families, societies do too. Each society has its customs. With equal certainty, there is a big hoo-ha every year. Every summer, you may be sure to hear it when you turn on the newspaper and when you open the television. Every year with the certainty with which the mushrooms follow the rain there is a story in the popular press. The headlines to the effect that top jobs in the country go to certain people.
Financially, perhaps even socially, all that is good in this country is easier achieved if one has had the benefit of independent education. All know of the correlation between the top jobs — such as those in law, medicine or journalism — and having gone to public school. Thirty-five per cent of members of parliament elected in 2010 went to independent schools. Only 7% of the nation’s children are independently educated. Most school fees are paid from inherited wealth. They are paid by trusts.
By writing your will today, you will be laying the foundations for your family’s well-being several generations hence. Today, inheritance tax is paid by folk whose forebears, two or three generations ago, perhaps died intestate or didn’t have a will that addressed the possibility of further generational inheritance tax. Inheritance planning shields the fruits of your life’s work, your legacy from threats such as:
• Remarriage of a surviving spouse;
• Ex son- or daughters-in-law;
• Future step-parents of your grandchildren;
• Children’s creditors;
• Someone else’s grandchildren; and
• Inheritance tax.
The question is not merely as asked in every detective story: Qui Bono? Who benefits?
The real question is: where, three or for generations hence, would you like your descendants to be financially, and perhaps socially? More than ever, our young people are headed for university. There is a distressing trend among the youth – their course choice is a function not of their passions or interests but their earning potential on graduation.
Do you wish your descendants to spend their working lives in occupations of moderate-income, or to spend thirty years in a miserable career?