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 discretionary trust where a testator is worried about assets being sold to avoid care fees affecting the distributions in their will.
Emilia has three children; John, Charlotte and Daniel. Her estate consists of a solely owned property, which is the bulk of her estate, but she also has substantial cash assets. She wishes to leave the property to Charlotte in her will, as Emilia has benefitted John and Daniel with substantial gifts during her lifetime. She wishes any residue however to be split any residue between John and Daniel.
What’s the problem?
Emilia is physically frail and is concerned about going into care in the future and that her home may be sold after she has moved into care. If this was the case, it would cause the gift to Charlotte to fail as she no longer owns the property. In this situation, the will could perhaps be worded so that Charlotte instead takes a cash gift equal to the last sale proceeds, but if her estate has been reduced to pay for her care this may impact the inheritance of John and Daniel.
She is also worried that if the property is not sold, her cash assets may be used to fund her care which would detrimentally impact the inheritance of John and Daniel.
The property could still be gifted to Charlotte but the residuary estate could pass to a discretionary trust with all children as potential beneficiaries. A letter of wishes would be needed to guide the trustees on how they should act.
If that the gift of property takes effect, the trustees could distribute the residuary discretionary trust equally between John and Daniel. In the event that the property has been sold during lifetime, causing Charlotte’s gift to fail, the trustees could then make a distribution between all three children. The amounts each children would receive could be guided by the letters of wishes with the trustees would have flexibility to make a distribution considering all the value of the estate at that time.
To give further flexibility, the whole estate including the property could also pass to the discretionary trust. This would allow the trustees to benefit John and Daniel from the property in the event that cash assets have been reduced by paying towards Emilia’s care.
If you would like any further advice on this, please don’t hesitate to contact us at [email protected].