Lifetime Trusts are a common and useful tool in estate planning with many benefits; one of which could be avoiding the need for your executors to obtain a Grant of Probate when you die.
Understanding Probate
A Grant of Probate is a document issued by the Probate Registry and acts as confirmation that the people named in the Grant are the executors appointed in a valid Will and therefore, have the power to administer the estate of the deceased person.
Most institutions such as banks, building societies and investment companies require a Grant of Probate in order to release any money they hold to the executors.
If the deceased person owned a house or any other property (or share of it) in their sole name, it will be necessary for the executors to obtain a Grant of Probate before they will be able to sell the house or transfer it into the name of the beneficiaries.
If a person dies without a valid Will they die ‘intestate’ and it is the responsibility of the administrators (usually the deceased person’s next of kin) to obtain a Grant of Administration instead. This is very similar to a Grant of Probate however, the application process differs slightly as there is no Will to provide specific instruction as to who can make the application.
The term ‘Grant of Representation’ is often used as a generic term to encompass both a Grant of Probate and a Grant of Administration.
The process of obtaining a Grant of Representation involves the executor/administrator having to compile information in order to complete the application paperwork and Inheritance Tax form (which is required even if Inheritance Tax is not payable) and this process can be lengthy.
There is also an additional expense to the process since court fees will be payable and your executors may need to instruct a professional to assist with managing the process.
Leaving property in a Trust allows someone to reduce the burden on their loved ones after their death and remove the need to obtain a Grant of Probate.
Could a Lifetime Trust be the solution?
Firstly, a Trust is a legal relationship whereby a person gives property to another to hold for the benefit of someone else; a Trust is therefore a way of managing assets and planning how these should pass from one generation to another.
If you create a Trust in your lifetime, any assets that you choose to place into that Trust will no longer form part of your estate when you die. These assets will be put into the name of your trustees who will hold them for the benefit of the people who are named as beneficiaries in the Trust Deed.
The settlor (the person who has created the Trust) can also be named as a beneficiary if they wish to benefit from these assets during their lifetime, this includes using a property as your home during your lifetime.
As the assets held in Trust will no longer belong to the settlor outright, and they will not form part of their estate when they die, the executors will not be required to administer these assets after their death. Instead the trustees will be able to continue dealing with these assets in Trust; this means that they will be able to release any money or transfer the assets held in Trust to the beneficiaries straight away, without needing to obtain a Grant of Probate.
A house is often a person’s most valuable asset and it is understandable that people want to protect this for future generations. Like any other assets put into Trust, the property will be transferred into the names of the trustees and a Grant of Probate will not be required to sell or transfer the property on the settlor’s death. The trustees may also decide for the property to remain in the Trust after the settlor’s death and that renting the property to generate income for the beneficiaries may be more beneficial instead.
Creating a lifetime Trust will not avoid the need to make a Will and it is still important to do so. Executors will still need to be appointed to deal with the deceased’s other assets, outside of the Trust, and to deal with other aspects of the estate administration however, reducing the need to obtain a Grant of Probate can make their job a lot easier.
Other things you may want to consider:
A Trust can be created by a single person or a couple. It is often advisable for each person to have their own Trust to make things easier in the event of separation or divorce.
Any property must be owned by the settlor(s) and if it is subject to a mortgage, then only the equitable interest can be placed into Trust.
To avoid any claims relating to deprivation of assets, the settlor should not foresee any imminent need for residential care.
Trusts are an invaluable way of protecting assets and it is often seen that the younger in age when the settlor creates the Trust, the better.
It is important to be aware that transferring the family home into Trust may affect the availability of the Residential Nil Rate Band relief.
Most lifetime Trusts fall under the relevant property regime for Inheritance Tax purposes, which means that if the value of the property exceeds the standard Nil Rate Band, Inheritance Tax may become payable – even during your lifetime, however, Trusts can be structured so that the Trust value never exceeds the standard Nil Rate Band and so is not exposed to Inheritance Tax.
There are many other benefits that can come with creating a lifetime Trust, in addition to reducing Probate costs however, it is important to be aware of the administrative requirements and responsibilities that creating a Trust produces.
It is also important that you obtain the correct advice and that you are comfortable that a Trust is the best solution for you before creating a Trust.
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