Below is a summary of the types of Will Trusts available.

Right to Occupy

The use of this trust is specifically aimed at an individual who wishes to grant a right to occupy a property or family home after their death.

This type of trust can be constructed for a number of years or around an event such as remarriage/age.

Care needs to be taken as a property may have a mortgage or loan against it that needs to be cleared on death, unless property owned jointly and both parties on a mortgage.

It could be used for cohabiting partners, children living at home or possibly a spouse.

Immediate Post Death Interest Trusts

Life interest trust

This is a simple arrangement which allows the trustees to hold specified assets often the residuary estate for the benefit of an individual during their lifetime. Where the gift is to the spouse, they receive the spousal exemptions so there is no inheritance tax paid on first death.

If the gift is not to a spouse, then there may be tax due on death.

Again, it can be applied to a range of assets or a specific asset and constructed for a number of years or until an event.

Protective Property Trusts

This is a property trust where the main asset is a family home. The property will need to be held as Tenants in Common in equal shares (50/50) and registered with the Land Registry on this basis.

A “life interest” is granted and allows the “life tenant” to have a number of rights under the trust. It can allow the right to occupy, the right to receive an income where property has been liquidated and can grant a loan.

It can protect your interest in a family home for your children particularly in the case of remarriage of your spouse.

The term or duration of the trust can be ended after a number of years or by an event such as cohabiting, remarriage or death.

This trust can also mitigate care fees for your surviving spouse as they do not own the whole property after your death, reducing the value that can be taken into account.

Flexible “Life Interest” Trust

This type of trust gives the life tenant (usually spouse) an income (or reside in a property or enjoy the use of assets for life). It differs from the other life interest trust because it allows the trustees to also appoint capital to the life tenant.

You should write a letter of wishes to guide your trustees in exercising their direction.

If left to a spouse the trust uses the spousal exemption and there are no tax issues on first death, on the death of the life tenant if changes into a full discretionary trust. Then the taxation of the trust becomes more complicated and there may be exit charges and anniversary charges but you may guide your trustees (by law) to wind the trust up at this stage, appointing your children (for example) as ultimate beneficiaries absolutely.

Nil Rate Band Discretionary Trusts

Before 9th October 2007, leaving the entire estate outright to the surviving spouse wasted the first spouse to die’s inheritance tax nil rate band. To avoid this, married couples and civil partners often included provisions in their Wills creating a nil rate band discretionary trust on the first death. Now it is possible to transfer any unused nil rate band for the death of the first spouse to the surviving spouse and so the allowance is not lost.

It is difficult to predict if leaving a nil rate band discretionary trust on first death will be disadvantageous. It depends on the future value of both the assets concerned and the inheritance tax nil rate band, and of course the intention of beneficiaries of the trust funds.

A discretionary trust could protect assets against long-term care means-testing. The arguments against keeping the trust include a belief that the transferrable nil rate band will at least keep pace with any growth if the assets did form part of the survivor’s inheritance tax estate. A discretionary trust also has a relatively complex tax treatment where the value exceeds the nil rate band.

Discretionary Trusts of Residue

A discretionary will trust can be used to bypass the deceased’s children, where there are future accruing inheritance tax issues in their own estate. This can be advantageous if members of the next generation are wealthy in their own right, but the testator does not want to deprive them of potential access to family assets by leaving them to a younger generation. The trustees usually have the power to make loans to a beneficiary. This gives the beneficiary access to funds without increasing the value of the inheritance tax estate. There are complex tax treatments where assets are in a discretionary trust and the value exceeds the nil rate band, which need to be considered in deciding if this is an efficient way to leave your assets.