How can I protect my assets long-term when a writing a will?

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It is impossible to predict what circumstances your surviving spouse or other relatives may find themselves in one, five or ten years down the line. It is vital that you identify that the estate you are leaving behind will find its way to the beneficiaries you wish to leave it to, come what may, writes estate planning specialist Paul Thompson.  

The reason why advisors talk so often – and so ardently – about asset protection is that there are so many things that assets need protection from: tax, care fees, profligate beneficiaries, family disputes, incapacity and remarriage to name just a few. All of these can be ruinous to your hard-earned estate, not to mention to your family’s prospects.

Our clients will often take steps to put protection schemes in place throughout their lifetimes but there is a balance to be struck between asset protection and asset enjoyment. Understandably, people tend to delay their estate planning so that they can enjoy their wealth as absolute owners for as long as possible. This makes asset protection in your will the last – although quite possibly the best – opportunity to put a long-term protection scheme in place.

Care fees 

The eye-watering cost of privately-funded care remains a hot topic. If a partner or spouse is living in your home, then it is likely the property is protected from care fees for as long as they remain in residence. This can take some of the pressure off lifetime tax planning, so that the focus can be on preparations for the end of their life. At that point, any subsequent care requirement for the survivor will leave the property vulnerable.

A good way of creating some protection against this is for the deceased to place their property share into a will trust. The terms of the trust will entitle the survivor to occupy the property rent-free and will protect the settled share for capital gains tax purposes. However, the underlying capital will not belong to the survivor, and so will be out of reach of any local authority care fee assessment. Although this only leaves the survivor’s half of the property available to meet care costs, it does at least guarantee protection for one half of the property.

Inheritance tax 

Will trusts on first death can be used to save inheritance tax for spouses and partners. For instance, assets which are likely to increase significantly in value after the first death could be placed into trust, so that their value rises in the hands of the trustees and not the surviving partner. This scheme is often effective for land where planning permission is a possibility or for farming and business assets which, at the time of the first death, qualify for inheritance tax relief.

A re-married widow or civil partner might also look to use a trust to capture their first spouse’s transferrable nil-rate band, which would otherwise be lost if everything is left to the second spouse. 

Protection for beneficiaries

Protecting assets is not just a scheme for couples. Anyone leaving wealth for children or young adults is best advised to place it onto a life trust or a contingent trust so that the beneficiary’s circumstances at the time of the testator’s death can be considered by the trustees later on.

If a beneficiary is too young or too profligate, if they are facing bankruptcy or divorce, it may well be best for assets to remain in trust so that their inheritance is not lost or squandered.  

This is also useful if a particular asset is left to several beneficiaries to be shared amongst them. In a will, testators can use different trust structures and appoint particular trustees to make sure that the process of sharing, distributing or even retaining assets is made as smooth as possible and can limit disagreements.

Incapacity and remarriage

Any problems arising from either of these circumstances can be avoided through protective structures in wills. If a testator wishes to make provisions for a beneficiary who is vulnerable or otherwise incapable of managing their affairs, then it is sensible to place them on trust so that trustees can retain the assets and make decisions about them. This might also preserve the beneficiary’s state benefits.

Similarly, assets left to a surviving spouse or to a married child could be lost in a family dispute or otherwise re-routed to alternative beneficiaries. Trusts on the first death mean that, at the very least, the underlying capital can be preserved no matter what circumstances the beneficiary may find themselves in down the line.

In instances where a couple each have children from a previous relationship, their ultimate beneficiaries are likely to be different. By using a trust on the first death, not only can the interests of the surviving spouse be protected but also the ultimate entitlement of the separate family beneficiaries can be assured.

It is almost impossible to predict on a first death what circumstances either the surviving spouse or other relative may find themselves in one, five or ten years down the line – some may be positive, some not so positive. It is vital, therefore, that appropriate measures are put in place to ensure that the estate you are leaving behind will find its way to the beneficiaries you wish to leave it to, come what may.

About the author

Paul Thompson is a partner in Roythornes Solicitors private client team and is a specialist in estate planning, trusts and capital taxes. Inheritance tax, capital gains tax and succession are important elements of Paul’s expertise. He uses trusts, wills, investments, legislation and common law to help families, trustees and executors minimise their tax liabilities as assets pass from one generation to another.

For further advice on asset protection for wills, visit www.roythornes.co.uk.

Tags: Wills inheritance tax care fess incapacity remarriage

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