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Thousands of families are disinherited every year

The main reasons: Remarriage, Divorce, Bankruptcy or Long Term Care

REMARRIAGE - THE PROBLEM...

Mr. & Mrs. Brown have assets worth £750,000; their main asset is their home which is worth £500,000 and they also have £250,000 in various investments.

They have made wills that leave everything to each other and then their estate is to pass to their children. Mr. Brown dies and Mrs. Brown inherits his share of the house and the investments.

Later on, Mrs. Brown remarries; Mrs. Brown's will is therefore revoked and if she should then die first, much of her estate will pass to her new husband and not to her children. When her new husband dies, his estate will pass to his own family and not to Mr. & Mrs. Brown's children. Clearly, this is not fair and certainly not what Mr. & Mrs. Brown would have wanted.

DIVORCE OF BENFICIARIES - THE PROBLEM...

We all hope that our children will make good marriages but with around 40% of marriages ending in divorce, it is important to at least consider the possibility. When your children eventually inherit your estate, any future divorce settlement would take that settlement into account; your hard earned assets could become the property of an ex-spouse, clearly not what either you or your children would want to happen.

BANKRUPTCY OF BENFICIARIES - THE PROBLEM...

If your children suffered bankruptcy, their inheritance could be considered by the court as an asset to be included in any settlement with their creditors effectively ending the cascade of your wealth through to future generations.

LONG TERM CARE FEES - THE PROBLEM...

Since the introduction of the Community Care Act 1990, thousands of estates have been wrecked by the imposition of paying Long Term Care fees. Around 480,000 people are resident in nursing and residential care homes; less than 20% of these are cared for by the Local Authorities, families are paying the cost either directly or through the loss of their inheritance. It is currently estimated that around 70,000 homes are sold each year to fund Long Term Care fees. If the survivor has to go into long term care, the local authority will asses the value of their assets to determine whether they will have to bear the cost, which could be as high as £800 per week. The children will see their inheritance disappearing week by week and they may inherit as little as £23,000 and the memory of just how hard their parents had worked to own their own home and accumulate their wealth.

THE SOLUTION - ASSET PRESERVATION TRUST...

By Goodwills Legal Services Ltd drafting an Asset Preservation Trust in your Will, when the first dies, their assets are held in a protective trust. The trustees are likely to be the surviving spouse and adult children or a trusted family member; this means that you and your family retain total control. The trust gives the surviving spouse an absolute right to live in the home and also, a life interest in all other assets; this means that they have an irrefutable right to the income produced and if they do require capital, the trustees can make cash advancements.

If the surviving spouse remarries, the assets held in trust can never become part of their estate but will remain in the trust to pass to the children when the survivor dies.

Upon the second death, all of the family's assets pass to a 'discretionary trust' with the children as the discretionary beneficiaries. This means that if they should divorce, their ex-spouse will have no claim to the inheritance as it is held in the discretionary trust with no beneficiary having an absolute right to the assets of the trust.

Similarly, in the event of bankruptcy, creditors will have no claim against the assets of the trust as the assets of the trust are not owned by the bankrupted individual.

In the event that one of the beneficiaries is considered as a 'vulnerable person', the trustees shall hold 'their share' in trust to ensure that their inheritance is not squandered or used to cause them any harm.

If the surviving spouse goes into Long Term Care, the local authority cannot take into account any assets there are held in trust; they can only take into account income and assets outside of the trust. The local authority is likely to disregard the value of the property altogether but in any event, you can be certain that at least half of your estate is protected for your children to inherit. The surviving spouse may sell the house and move to another property without any problem; in effect nothing changes.

INHERITANCE TAX PLANNING...

After the first death, the survivor may decide that the income they are receiving is in excess of their needs; they may surrender their life interest in any part of the trust assets (Potentially Exempt Transfers ) and this will be free from Inheritance Tax as long as the surviving spouse lives for 7 years after the gift is made. Please seek our advice for gifts in excess of the Nil Rate Band current at the time.

Your children's estates are likely to have a liability to Inheritance Tax when assets pass to their children. By including an Asset Preservation Trust in your Will, your children do not need to take the inheritance into their own estates but rather 'borrow' it from the trust. This means that when their estates pay it back to the Trust, there will be no Inheritance Tax due. The Asset Preservation Trust may run for up to 80 years after the first death. There may be a Periodic Charge every 10 years (assets in excess of the Nil Rate Band) which is equivalent to about 6% and there may be a liability to tax on income generated or capital gain.

HOW WE SET UP THE TRUST...

If your home is owed jointly, (as most are), we will register a 'severance of tenancy' with the Land Registry so that each of you owns half of the property. If you own capital assets jointly, we will draft a deed declaring the assets to be owned individually; none of this actually affects you.

Only when the first dies does the trust come into effect; you don't need to take any action, the trust offers all the protection for the surviving spouse and your beneficiaries. Upon the first death, the deceased's assets are placed into the trust, this offers the protection from remarriage and long term care fees. Upon the second death, the trustees may end the trust and settle the assets upon the beneficiaries (your children) or they may continue the trust for up to 125 years from the first death, this will ensure the protection of the assets from divorce, bankruptcy and vulnerable beneficiaries and minimise future Inheritance Tax Liabilities.

  • About Goodwills Midlands

    Jim Goddard, a former training and support officer for the Willwriters Association and the Association of Lawyers and Legal Advisers began Complete Wills Ltd which became Goodwills Ltd, when it expanded its operational area to include Southern England. Jim was responsible for training the Goodwills team of Consultants in the early days of the organisation. Now all our Consultants are trained by our legal team at headquarters.

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  • Find us

    Mike Humpherson. EPC Cert. Aff. S.W.W.
    Direct Line: 0845 678 7010
    Email: mikejh@globalnet.co.uk

    Fax: 01785 713629
    Mobile: 07771 992717

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