Ilkley law firm, LCF Law, is advising anyone who has not reviewed their will for more than a decade to check whether it contains a trust and warns that it may need revising to make it relevant to updated tax rules.
This is particularly true in the case of wills written before 2007, which often contain complicated ‘nil rate band discretionary trusts’ that were used to make wills tax efficient.
However, changes to inheritance tax rules now mean inheritance tax allowances can be transferred between spouses, which can make the trusts a complication when a person dies.
Ann Christian, a partner at LCF Law, explained: “Trusts in wills is something that we always ask new clients about, but it’s becoming an issue that increasing numbers of families are now specifically questioning us about.
“The inheritance tax changes in 2007 meant that wills could be much shorter and simpler, with the same tax consequences, but many people left their wills as they were and presumed they could simply forget about their trust, but this isn’t necessarily the case.
“In broad terms, the inheritance tax advantage for this sort of trust may have gone, but in certain circumstances it can still be a very useful vehicle for sheltering family assets, after somebody has died. However, because of their complex nature, it is a good idea to get specialist advice about the trust, even if the family deals with other aspects of the estate administration without professional help.
“The family may decide that the disadvantages of keeping the trust now outweigh its potential benefits, but that is a decision that should be made after considering all the implications properly. Plus, there are formal steps that need to be taken, whatever they decide to do.”
Ann added: “There are also lots of families where someone has died, and the family assumed that they could simply ignore the trust in the will, and treat everything as passing to the surviving spouse. They presume the nil rate band allowance could be transferred over for use on the second death, if the trust was for the benefit of the family and everyone in the family agreed they did not want it.
“However, often when the surviving spouse dies, the surviving family members can find themselves in a pickle, because all the assets are in that spouse’s name, but only their own nil rate band allowance for inheritance tax calculation can be used. The first spouse’s allowance has been lost, because when HMRC look at that person’s will, they see that the assets were left to a trust, rather than the spouse.
“As a result trusts can become very complicated, very quickly, and it’s therefore worth seeking specialist legal advice to ensure they are still relevant and fit for purpose today.”
LCF Law is a leading commercial law firm that works with both businesses and private individuals. The long-established firm employs more than 145 people across offices in Leeds, Bradford, Harrogate and Ilkley and its personal law team provide a full range of will writing services as well as trusts, tax and asset protection advice, probate services, Lasting Power of Attorneys (LPAs) and specialist advice relating to inheritance disputes. Visit www.lcf.co.uk for more information.