Protecting your family’s inheritance
Family Protection Trusts for Devon families
A Family Protection Trust is a legal arrangement that holds what you leave, so it remains within your family. It can shield your children’s inheritance from remarriage, divorce and debt. Family Protection Trusts can be established via your Will and become activated upon death. Where a lifetime Trust is established, it can be populated with assets during your lifetime. Where a lifetime Trust is settled, then in many cases the Settlor, Trustee and Beneficiaries will be you, in addition to family members (depending on circumstances).
Three roles in every Trust
GOV.UK says a Trust is a way of managing assets (money, investments, land or buildings) for people.
- The SettlorThe person who puts the assets into the Trust and decides how they should be used.
- puts the assets in
- The TrusteesThe legal owners of the assets. They manage the Trust day to day and pay any tax due.
- hold the assets for
- The BeneficiariesThe people who benefit from the Trust.
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What it protects against
How an inheritance gets lost
When you leave money or a home to someone outright, it becomes theirs. From then on, it is exposed to whatever happens in their life.
Your partner remarries, after your death
Everything usually passes to your partner first. If they remarry and make a new Will, your children can be left out. This is often called sideways disinheritance.
A child’s divorce
An inheritance paid straight to your child can be counted in their divorce settlement. Held in a Trust, it can stay in your family.
Debt or bankruptcy
If a child runs into debt, money they inherited outright can go to their creditors.
A child dies before their partner
If your child’s partner inherits your child’s share, it can leave your family for good.
A child who needs support
Money paid outright can affect benefits that depend on how much money a person has, or be spent too quickly. Trustees, the people you choose to run the Trust, can pay it out with care.
Tax on the next generation
What your children inherit outright adds to their own estate, and can be taxed again when they die.
Two kinds of Trust
A Trust in your Will, or one set up now
There are two kinds of Trust: one in your Will, and one set up while you are alive. We’ll tell you which suits you, or whether you need one at all.
A Trust in your Will
It only starts when you die, so you keep full ownership while you’re alive. A common form holds your share of the home in trust. For that, you own the home as tenants in common, each with a separate share. Your partner can live there for life, then your share passes to your children. Your partner has an interest in the home for life.
A Trust set up in your lifetime
You move assets, such as savings, into the Trust now. This is sometimes called a living or lifetime Trust. Unlike a gift to a person, a gift into a Trust can face an Inheritance Tax charge during your life, and the usual 7-year rule for gifts does not apply in the same way.
How a Trust in your Will keeps your share of the home
You both own the home Each of you owns a separate share.
On the first death Your share goes into the Trust in your Will, not to your partner.
During your partner’s life They can go on living in the home.
Afterwards In most cases your share passes to your children, even if your partner later makes a new Will.
Before you decide
What a Trust can’t do
A Trust is no guaranteed way to beat care fees, escape tax charges or keep the home allowance. This is what the rules actually say, so you can decide with your eyes open.
Beat care fees
The care and support rules let the council treat an asset you gave away as still yours, if avoiding care costs was a reason. However, a Trust is one way in which you can manage care fees.
Always keep the home allowance
A Discretionary Trust is one where the Settlor specifies the potential Beneficiaries and the Trustees choose who benefits according to the settlor’s personal Letter of Wishes. If a Discretionary Trust owns your home, potentially your estate can lose the extra £175,000 home allowance for Inheritance Tax. However, we have a specific Trust designed to ensure that the Residential Nil Rate Band is not lost.
Let you give and still use it
If you put your home in trust but keep living there, it still counts as yours for Inheritance Tax. GOV.UK calls this a gift with reservation of benefit. However, there is an exception to this rule depending on circumstances – Contact us for further info.
Escape tax charges
A Trust holding more than the Inheritance Tax threshold can pay a charge every 10 years. This is known as the Periodic charge and is currently 6%. Trusts can be subject to entry and exit fees.
Run itself
All lifetime Trusts must be registered with HMRC within 90 days and kept up to date. Trustees have duties for as long as it lasts. We deal with this for you.
Suit everyone
For some families, a well-written Will does the job on its own. If that’s you, we’ll say so.
How we work with you
Three steps, with a written plan and fee before you decide
You see a written plan and fee before you decide to go ahead, in three steps. Michael Doctors has 27 years of estate planning experience and is a STEP Affiliate Member. He comes to you, anywhere in Devon and the South West, or meets by video.
1. A first conversation
We look at what you own and who you want to provide for, and tell you plainly whether you need to do anything.
2. Your written plan
You get a written summary of the options that suit your family, and the fee to put them in place.
3. Implemented then supported
First drafts are normally 10 working days from instructing our solicitors depending on workload. Signed documents usually take one to two months and sometimes longer depending on complexity and client approval of drafts. Registering Trusts with HMRC takes some weeks, and the Land Registry can take 12 months or more after that.
Michaels & Co is a specialist estate planning consultancy. Legal document drafting such as preparing Trusts, applying for probate, HM Land Registry & HMRC work is carried out by our preferred partners, who are SRA-regulated solicitors, full STEP members and Tax & Trusts Corporations. All work submitted is compliance checked throughout the process through to delivery to you, the client.
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“We were looking for advice on how best to secure our family home in Exmouth for our daughter and her children. Michael, working with a law firm, has helped us establish a bespoke Trust and new Wills which exactly fits our needs.”
Ian T.
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Questions
Family Protection Trust questions, answered
You see a written plan and fee before you decide to go ahead. These answers cover common questions.
Are Family Protection Trusts a good idea?
For many families, yes, when the Trust is chosen for a real family reason. A Trust in your Will may also suit many couples.
If you don’t need one, we’ll tell you.
How much does it cost to set up a Family Protection Trust?
It depends on your family and the Trust. You see a written plan and fee before you decide to go ahead. Our Terms of Business set out what we charge.
What are the drawbacks of a family Trust?
Trustees must run it and keep it registered with HMRC. Some Trusts pay tax charges of their own, and a Trust that owns your home can lose the home allowance. Set up badly, a Trust can cost your family more than it saves.
Can putting my house in trust for my children keep it out of care home fees?
Not reliably. A Trust does not stop the council treating the house as yours if avoiding care costs was a reason. This is the deprivation of assets rule, and timing matters.
A transfer made when care was already likely is looked at closely. A Will can leave your share of the home in a Trust instead. Whether that helps depends on your circumstances, so we tell you plainly.
Is a Family Protection Trust the same as a living Trust?
A living Trust is simply one set up while you are alive. A Family Protection Trust can be set up that way, or inside your Will. The type matters more than the name, because each type has its own tax rules.
Related: Wills Inheritance Tax planning Care fee planning Disability Trusts Deed of Variation
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