Trusts have a variety of different uses in wills. Most of these are relatively well known by will writers, however there are times where very specific facts could warrant the use of a trust. In this regular feature of the newsletter we will cover situations where a trust could be recommended to a client that you might not have thought of.
This week, we will look at a situation where you may consider using a life interest trust rather than excluding a spouse who lacks mental capacity.
Alice and John have been married for 50 years. They do not have existing wills. John has a son from a previous relationship who is estranged, and they have two joint daughters. John has been diagnosed with advanced dementia and no longer has testamentary capacity. Alice believes that if she died before him, John would most likely go into care.
She wishes to make a new will gifting her entire estate to their children. She does not wish to make provision for John for two reasons. Firstly, she would not want assets inherited by John to pass to his estranged son under John’s intestacy. Secondly, she worries that any assets inherited by John would be used towards his care.
What’s the problem?
Whilst Alice is able to exclude John from the provisions of her will, consideration should be given to the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act). Excluding him entirely could leave open arguments that she has not provided him with reasonable provision. Whilst John is unlikely to attempt an application under the 1975 Act himself, there is a risk that an application could be brought on his behalf.
Rather than excluding John entirely, Alice may wish to consider placing part or all of her estate into a life interest trust for him. Under the terms of the trust, John would be entitled to all income from the trust but the trust capital would not be owned by him and therefore can be protected for her children to inherit on John’s death. It would not pass to John’s son and the capital could not be used towards funding John’s care. This would ensure that John still receives some benefit from the estate and should assist if a 1975 Act application is made in the event that Alice predeceased him.
If you would like any further advice on this, please don’t hesitate to contact us at [email protected].