Married couples or civil partners should think carefully how their Will is drawn up if they are concerned about death duties, their surviving spouse remarrying, or the divorce or bankruptcy of any of their children.

Before the Finance Act 2008, the most common practice when drawing up tax-planned Wills was to incorporate a nil-rate band discretionary trust into the Wills.

Protecting Assets Will

This ‘ring-fenced’ on death the maximum that could be passed to the next generation without any payment of inheritance tax.

The surviving spouse could then ‘borrow’ cash or assets from this trust, as long as they were repaid upon his or her death, or possibly earlier if they went into care.

In this way, the inheritance tax allowance is preserved while still allowing the surviving spouse to use all the assets of the first to die.

Since married couples are now in certain circumstances able to transfer any unused nil-rate band of the first spouse to die, some newspaper articles have led people to believe that such planning in Wills is no longer necessary.

However, for many couples such Wills are still the sensible option because these Wills offer several advantages other than just for inheritance tax, although they do often still have considerable tax advantages.

We call these arrangements ‘Flexible Trust Wills‘, and they are still requested by most of our married clients.

Flexible Trust Wills ring-fence your assets up to a maximum of £325,000 in the current tax year if your surviving spouse were to remarry after your death.

This means they can have use of the funds by borrowing them from the trust, even though they would not actually belong to your widow, widower or civil partner.

Consequently these assets cannot in due course pass to his or her new spouse or the new spouse’s children, but will pass to your own children or grandchildren or to whoever you have named in your Will.

If your widow, widower or civil partner were to go into care some time after your death, then your assets would be ‘ring-fenced’ and not be taken into account when the local authority assesses care fees.

These assets would be protected and, again, in due course would pass to your children or grandchildren, although the assets in the meantime could be used for the benefit of your widow or widower if needed by them.

On the eventual death of your widow, widower or civil partner, any assets of the trust that have been loaned to them are repaid to the trust.

These will usually then be divided amongst your children or grandchildren or your named beneficiaries.

However, if any of these are on the verge of divorce or bankruptcy, if they should have a drink, drug or gambling problem, or if there were any other reason why it would be disadvantageous for them to receive a lump sum, the trust can remain in place for however long is needed.

Funds can then be ‘drip-fed’ to them as and when required, while protecting the assets from their former spouse, trustee in bankruptcy, or addiction.

Finally, in the perfect scenario- where both of you are quite elderly when the first of you dies and there is almost no likelihood of the survivor remarrying, your children are all settled and problem-free, and the trust ensures there are ample funds to provide care for the survivor of you if needed-then when the first of you dies the funds in the trust can simply be appointed in favour of the survivor.

The result is that the trust does not get set up, and on the death of the survivor the estate can fully utilise the inheritance tax allowance of both of you.

The real beauty of Flexible Trust Wills is their total flexibility.

Since few of us know when we are going to die and none of us know what the future holds, it is usually impossible to make decisions now about what should happen on our eventual death. With these Wills in place, no decisions need to be made until the first person dies.

Read more about Couples with considerable assets