Tag: trusts | Wills Jacobsen

The registration of trusts with HMRC

In 2017 HMRC set up the Trust Registration Service, which is a register of the beneficial ownership of trusts.

Some clients are not aware that following recent legislative changes all trusts now need to be registered with HMRC, unless they are excluded.

Importantly, life interest trusts made by Will are affected by these changes, and hence need to be registered with HMRC, even if the life tenant receives all income from the trust and includes it on their own tax return, or if the trust produces no taxable income at all.

What is a life interest trust made by Will?

A life interest trust is a very common arrangement in a Will where an individual, e.g. a surviving spouse, is left a right to income, or to use or enjoy the benefit of their deceased’s spouse’s share of a property, for their lifetime, (such Wills are normally called property protection trust Wills). The surviving spouse is known as the life tenant under such a Will.

Upon the death of the life tenant, the underlying capital assets of the life interest trust pass to the ultimate beneficiaries under the Will of the first deceased spouse. These ultimate beneficiaries are known as remaindermen, and are commonly the children of the marriage.

Many of our clients have a Will arrangement which includes a life interest trust (property protection trust). If you have such an arrangement, there is nothing for you to do as regards trust registration, if you and your spouse are both still alive. This is because the trust only comes into being on the death of the first spouse.

However, if you are a surviving spouse, and are benefitting from your deceased’s spouse’s life interest trust, (even if this is only a benefit from living in his or her share of a property), then the life interest trust will need to be registered online with the Trust Registration Service by the deadline of 1^st September 2022, or sooner if the trust is producing income.

Here are some examples of life interest trusts: –

A Husband and Wife made Wills, and left a life interest in the matrimonial home to each other. The Husband died in 2015. The Trustees of the Will trust are the Wife and her daughter. The Husband’s half share of the matrimonial home was transferred into the names of his Will trustees following his death, thereby constituting his trust. The Wife is now downsizing and does not need all of the trust’s share of the proceeds of sale to purchase a new property for her. The Trustees will therefore need to invest the balance of the trusts proceeds of sale, and these will produce an income for the Wife as life tenant. The Wife will need to declare this income on her own tax return. The trustees will need to arrange to register the trust with the Trust Registration Service.
A Husband and Wife made Wills, and left a life interest in the matrimonial home to each other. The Wife died in 2012. The Trustees of her Will trust are the Husband and a son. The Wife’s share of the matrimonial home was transferred into the names of her Will trustees following her death, thereby constituting her trust. The Husband remains living in the matrimonial home. Half of it belongs to him, and half to the Wife’s Will trust. There is no income produced for the trust as the Husband lives in the property. The trustees still need to arrange to register the trust with the Trust Registration Service.

Other trusts

All other types of trust also need to be registered with the Trust Registration Service, unless they are excluded. The exclusions are limited and importantly do not cover all Declarations of Trust in relation to the beneficial interests in property. Therefore if the Trustees of a property and the beneficiaries of the same, are not the same people, the trustees will need to arrange to register the trust with the Trust Registration Service.

The exclusions from registration of a trust can be checked on the government website https://www.gov.uk/guidance/register-a-trust-as-a-trustee and you can register a trust you are involved with yourself, by using this website link.

The dates for the deadline for registration can also be checked on this website, as they differ according to whether a trust is taxable or not, what type of tax is due, and when it is payable.

You may wish to speak to your legal advisor about the above, to ensure that you are meeting all requirements.

It’s true – some good things in life really are FREE

Are you keen to protect your assets for your loved ones? Do you have children, and are you motivated to provide for them?

If so, you have probably made a Will to ensure that the assets you have worked hard to acquire are passed on to your chosen beneficiaries after your death.

However, your Will is just one step and can only control the assets that you own at the date of your death. If those assets are eroded during your lifetime, because of care fees or other issues, there will be little if anything for your beneficiaries to inherit.

It is therefore crucial that you plan for the future and consider using a Family Trust, specifically designed to protect assets from care fees and spendthrift beneficiaries. You can have a Family Trust as part of your Will or create the Trust in during your lifetime. Either way a Family Trust gives you the peace of mind that your assets can pass on securely down your bloodline (or to other named beneficiaries).

For more comprehensive information regarding the Family Trust and to find out how to make the best use of your Inheritance tax allowances, pensions and why Equity Release may be a saviour, attend our FREE seminar on 1st December 2016 from 10am to 1pm, at The Holiday Inn Huntingdon.

To book please call Wills Jacobsen on 01487 808000.

Protecting your assets & preserving your wealth

If you want to safeguard your assets for your family, it is important to make sure you put as much protection in place as possible whilst you are still able to do so. However, whilst you are alive it is important that you have full access to, and use of your assets, so that your quality of life is not jeopardised. This is particularly important during your retirement when your ability to replace capital is significantly reduced.

Effective planning does not involve you giving everything away or putting your own financial security at risk for the benefit of your family. Instead it is about giving you the peace of mind of knowing that whatever happens in the future, you or those you trust will remain in control of your assets and you will not lose them to the state.

Consider the following questions:

How much of your estate would you be prepared to lose to pay for long term care fees?
Who would you trust to look after your affairs if you could not look after them yourself?
Would you be happy for your children and grandchildren to lose 40% of your estate in Inheritance Tax?
How would you feel if your assets ended up in the hands of someone you have never met?
What would happen to their inheritance if one of your children divorced after your death?
Do you want to leave the financial security of you and your family to the roll of a dice

Using trusts to protect your assets

For around 900 years the wealthy have used trusts to protect their assets for their family. A trust is a legal concept that started in the Crusades and has developed over the centuries to become a robust mechanism used worldwide.

Trust are now a very important part of everyday life. Your pension is a trust, every charity is a trust, some schools and hospitals are trusts and every new parent now has access to a child trust fund for their new born.

A trust has the benefit of simply putting a legal barrier between your trust assets and everyone other than your chosen beneficiaries. By naming your bloodline (or anyone else you wish to benefit) as the beneficiaries of your trust, you guarantee that the rest of the world will not be able to share in the trust’s assets.

If you use a trust to protect assets you are able to specify how and when your chosen beneficiaries receive a benefit from your estate. You can impose restrictions, conditions or time limits on gifts. This can be of enormous benefit to the long term security of your loved ones.

For example:

If you leave money outright under your Will to your son or daughter who is in the middle of a divorce, this will be a very nice windfall to his or her estranged spouse
Leaving your estate outright in your Will to your spouse who then goes into care, is a very nice windfall for the local authority
Leaving a sum of money in your Will to your grandchild at 18 who falls in with the wrong crowd could see it disappear within days of your death
Leaving a sum of money outright to a disabled beneficiary in your Will, means they could lose all of their means tested benefits

By making the above gifts via a trust you will be able to:

protect your son/daughter from losing their Inheritance
reduce the risk of losing your entire estate to the Local Authority in care fees
delay the gift to your grandson until he is responsible enough to appreciate it
protect the benefits of your disabled beneficiary

The wealthy learned many years ago that if they wanted to protect their bloodline they needed to put the correct documentation in place. Over the generations they have written the rules that guarantee wealth can pass down through their generations safe from divorce, remarriage, illness and tax.

These same rules can protect you and your family and give you the satisfaction of knowing that you have done the very best for them.

Want more information? Get in touch or come to our FREE seminar. Call us to book your place.

Happy birthday to you

Just over ten years ago major changes were made to the way that most trusts are treated for Inheritance tax (IHT) bringing most within something called the “Relevant Property Trust Regime”. This regime seeks to impose 10 year and exit charges on money held within trusts and as a result many trusts formed in 2006 (when legislation changed) could by now have reached their tenth anniversary.

So is it a happy birthday?

Much will depend on the value of the trust assets and what planning has been undertaken up to the first 10-year anniversary. What is clear is that over the last 10 years asset values have risen (especially property) notwithstanding the crash of 2008 and subsequent recession. Given that distributions from trusts are factored back into a 10-year calculation it seems likely that HMRC are in for a stream of revenue from such trusts this year.

Some background for you

The IHT regime for relevant property trusts imposes an IHT charge on every 10-year anniversary and when capital leaves a trust.
The calculation of the tax charge is complicated and HMRC has consulted on ways to simplify the calculation whilst protecting tax revenues. Unfortunately, it now appears there will not be any major simplification.
There is only a limited range of trusts that are not relevant property trusts.
If you do not file a return for your trust 10-year anniversary, or when an exit charge arises, the trustees will face a penalty.
Even if your trust does not have an IHT liability at the 10-year anniversary point you may still need to file a return within given deadlines.

Filing dates

From 6 April 2014 the filing deadline for returns of a 10-year anniversary charge and all exit charges became 6 months after the end of the month in which the charge arose.

Given that the new regime came into being on 22nd March 2006, it is possible that your trust may be facing a 10-year anniversary as early as 23rd September 2016.

Due to the complex nature of the 10 year calculations, trustees are advised to give thought to such a return sooner rather than later.

What can you do?

If you are a trustee and you require advice about an approaching 10-year anniversary contact us for advice.

Its all a matter of trust

Trusts are a great way to help protect your loved ones, either in your lifetime, or after you have died. Trusts can ensure your loved ones are provided for in the future. Trust funds have many uses and are set up for many reasons. The most common are:

To protect assets – so they cannot be used to pay for care home fees
To guarantee an income for loved ones – providing financial stability for their future
To help to avoid inheritance tax – ensuring money, shares and property are passed on in the most tax efficient way
To declare different interests in property – where two or more people have paid different amounts when purchasing
To provide for future generations – so that grandchildren and great grandchildren can benefit
To provide for vulnerable beneficiaries – so that their means tested benefits are not affected

As well as protecting assets such as property, money and shares, trusts can help provide for a family’s future. Many people consider setting up a trust to safeguard their assets if their chosen beneficiary is either:

Too young to inherit – the beneficiary cannot inherit until they reach the age of 18
A spendthrift – If the person is not great with looking after money, any gift can be put into a trust and they can receive a gradual income from it.

For the vast majority of people their home is their main asset and they want to ensure that as much of it as possible passes to their children. Care home fees are a particular worry for many people. The current care fees regime means that should a person need to go into care, the Local Authority will assess that persons income and capital resources to determine whether they should contribute to the costs of their care. If their capital assets are more than (currently) £23,250 they have to pay the full costs of their care.

In view of this, the most popular type of trust we encounter is a Property Protection Will Trust. This trusts provides a flexible way of allowing a surviving spouse to live in a property after the death of the first spouse, whilst preserving the deceased’s share of the property from care fees so it can pass to the children of the family.

Setting up trusts can be a complicated process, but trusts do have great benefits provided that the right trust is chosen. You should always seek the help of your legal advisor in setting up a trust as are there are different tax rules which can apply, depending on which trust you opt for.

We can fully advise you about all trusts and which trust would be best for you to preserve your assets & wealth for your loved ones. We offer a fixed fee asset & wealth review for this purpose and we have lots of free information about the different types of trust that are available on our website.