Private client associate, Katherine Green, discusses ongoing trusts in wills and why wills made before 2007 may need updating.
It always strikes me as strange that spring is seen as a time to 'clear out and sort', when in fact autumn is when we often have more time at home in the evenings to review those long-forgotten files that have accumulated for weeks, months and sometimes years.
In sorting through these papers, one often comes across paperwork relating to an event which happened years before, but before adding it to the shredding pile, you should make sure that it doesn’t have relevance today.
In the context of wills and estates, where a parent or relative died some time ago leaving everything to their spouse, the executors often believe that everything has been dealt with. However, it is possible that (and especially if the will was made before 2007) there is a trust in the will which is in fact ongoing.
A ‘nil rate band trust'
One example of this is what is known as a ‘nil rate band trust’. Before 2007, it was common for married couples to include this type of trust in their wills to utilise the inheritance tax free allowance (the nil rate band) when the first spouse died, if the rest of the estate was then spouse exempt.
The law changed in 2007, so now couples who are married (or in civil partnerships) can automatically make use of their spouse’s unused nil rate band allowance, without the need for such a trust. But it is often the case that wills with nil rate band trusts are still in existence, which are generally now no longer necessary or desirable.
If you made a will before 2007, we recommend you retrieve it from the back of the filing cabinet and have a look at it. If it appears to contain such a trust, then please get in touch with the private client team so we can advise you about this.
A ‘life interest trust’
The second example of an ongoing will trust is when the testator has left their estate on what is called a ‘life interest trust’. This is where part or all of the estate of the deceased has been left for the use of their surviving spouse (or another individual), but on the death of that person, the estate passes to the children (or other persons). These trusts protect the capital of an estate for the ultimate beneficiaries. Again, often executors are unaware of the consequences of this type of trust where there can be tax and HMRC trust registration requirements.
Please do have a look at that old will that you thought had been dealt with years ago - it may require updating.
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