Wills for married couples (or civil partners) who are concerned about death duties, the surviving spouse remarrying, or the divorce or bankruptcy of any of their children.Protecting your assets for the next generation

Before the Finance Act 2008, the most common practice when drawing up tax-planned Wills was to incorporate into the Wills a nil-rate band discretionary trust. This ‘ring-fenced’ on death the maximum which could be passed to the next generation without any payment of inheritance tax;  the surviving spouse could ‘borrow’ cash or assets from this trust, but these had to be repaid on his or her death, or possibly earlier if they went into care. In this way, the inheritance tax allowance was not wasted, while still allowing the surviving spouse to use all the assets of the first to die. Since married couples have (in certain circumstances) been 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 had several advantages other than simply for Inheritance tax, and in any event in certain circumstances they still have considerable tax advantages. We call these ‘Flexible Trust Wills’, and they are still requested by most of our married clients.

By having Flexible Trust Wills, if after your death your surviving spouse were to remarry, then your assets (up to a maximum of £325,000 in the current tax year) would be ‘ring-fenced’; they would not actually belong to your widow or widower (or civil partner), even though he or she may have had the use of the funds by borrowing them from the trust, and 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 named in your Will).

If your widow or widower (or civil partner) were to go into care some time after your death, then as above your assets would be ‘ring-fenced’ and could not be taken into account when the local authority were assessing care fees; the 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 or widower (or civil partner), any assets of the trust  which have been loaned to them are repaid to the trust; these will usually then be divided among 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 you are both quite elderly when the first of you dies, there is almost no likelihood of the survivor remarrying, your children are all settled and problem-free, and in the event that the survivor of you needs care there are ample funds for that purpose – 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 their estate can fully utilise the inheritance tax allowance of both of you.

The real beauty of Flexible Trust Wills is, not surprisingly, their total flexibility. Since few of us know when we are going to die, and none of us can be sure what the future holds, it is usually impossible to make decisions now about what should happen on our eventual death because of that uncertainty. It is therefore reassuring that, with these Wills in place, no decisions need to be made until the first person dies.