Lifetime trusts are not uncommon and can be an extremely useful tool in estate planning. There are many benefits to creating a lifetime trust and, yes, one of these could be avoiding the need for your executors to obtain a Grant of Probate when you die.

A Grant of Probate is a document issued by the Probate Registry and acts as confirmation that the people named in the Grant are the executors appointed in a valid Will and that they have the power to administer the estate of the deceased person. It is common for institutions (like banks, building societies and investment companies) who hold funds in a deceased person’s name to ask to see this document before they release any money to the executors.

If the deceased person owned a house or any other property (or a share of it) in their sole name, it will be necessary for the executors to obtain a Grant of Probate before they will be able to sell the house or transfer it into the name of the beneficiaries.

If a person dies without a valid Will they die ‘intestate’ and it will be down to their administrators (not executors) to obtain a Grant of Administration instead. A Grant of Administration is very similar to a Grant of Probate, although the application process differs slightly as there is no Will to provide specific instructions about who can make an application. The term ‘Grant of Representation’ is often used as a generic term to encompass both a Grant of Probate and a Grant of Administration.

The process of obtaining a Grant of Representation can take time. It is a set process and involves the executor/administrator having to compile various information in order to complete the application paperwork and complete an Inheritance Tax form (which will be required even if Inheritance Tax is not payable). The process also adds an additional expense to the administration process since court fees will be payable and your executors may need to instruct a professional in order to help them manage the process.

It is understandable that some people would want to look at ways to reduce the burden on their loved ones after their death and removing the need to obtain a Grant of Probate could really help.

A client's assets

If you create a trust in your lifetime any assets which you transfer into that trust will no longer form part of your estate when you die for the purpose of Probate. The assets will be put into the name of your trustees who will hold these assets for the benefit of the people who are named as beneficiaries in the trust deed. The settlor (the person who creates the trust) can also name themselves as one of these beneficiaries if they still want to benefit from the trust assets during their lifetime.

As the assets held in trust will no longer belong outright to the settlor, it will not be necessary for the settlor’s executors to administer these assets after their death. Instead the trustees will be able to continue to deal with the assets in Trust. This means they will be able to release money or transfer assets held in trust to beneficiaries straight away, without having to wait for a Grant of Probate to be issued.

Often people will decide to put their property (or share of property) into trust. A house is often a person’s most valuable asset, and it is understandable that people want to safeguard this for future generations. Like any other assets put into trust, the property will be put into the names of the trustees and a Grant of Probate will not be required to sell or transfer the property on the settlor’s death. The property could also remain safely in trust after the settlor’s death if the trustees decide that this would be the best thing for the beneficiaries, perhaps deciding to rent the property and generate an income for the beneficiaries instead.

Creating a lifetime trust will not avoid the need to make a Will and it is still important to do so. Executors will still need to be appointed to deal with the deceased’s other assets, outside of the trust, and to deal with other aspects of the estate administration. But reducing the need to obtain a Grant of Probate for key aspects can make their job a lot easier.

Trust benefits:

There are many other benefits that can come with creating a lifetime trust, in addition to reducing probate costs, but it is important that you are also aware of the administrative requirements and responsibilities that creating a Trust produces.

Some of those benefits are;-

  1. Bloodline planning can be achieved through a Trust ensuring that direct family cannot be accidentally or purposefully disinherited and used mainly for ring fencing the family home.
  2. As mentioned, the assets held within the Trust are no longer required to be part of a Grant of Probate process simply meaning the beneficiaries can receive their inheritance without the need of any Grant, saving time, money and making the whole process simpler and easier to manage.
  3. Sideways inheritance through adult children getting divorced is not possible so again ensure only your bloodline can inherit.
  4. The property Title is changed to reflect that the property on completion of the Trust is owned by the Trustees and the Trust and no one individual this is vital to ensure the Trust will stand up to scrutiny later, so there should not be any type of mortgage on the property.
  5. If a Lifetime Trust has been put into place, then family members who have been selected as Trustees are able to manage the assets and possibly contribute to any care fees later in life (perhaps from rental income), but the family remain in control and the main asset is ring fenced for the long-term beneficiaries.
  6. A Lifetime Discretionary Trust can accept most types of assets from a family home to investment Bonds, accounts and shares etc, although these trusts are not seen as favourably as an Immediate Post Death Interest Trust by HMRC if the RNRB is needed to be claimed later if clients have an IHT liability at 2nd death. They are for clients for whom bloodline planning is a primary concern rather than IHT as commonly this type of Trust is established as a Gift with Reservation of Benefit.

There can sometimes be some tax consequences, especially if you create a trust in which the client is also a beneficiary so ensure full advice is taken before considering this option for your client.

 

By working with BTWC to help provide clients with the right trust solution for them, you can be assured of achieving good fee levels simply for taking clear instructions from your clients. We ensure your client gets what they need and you can be assured of providing them with an effective inheritance planning solution.