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. This new regular feature of the newsletter 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 instead of removing a beneficiary from a will.
Mr Jones approaches you for a rewrite of his existing will. It currently leaves his estate between his three children equally. His daughter recently sold her business and is now a multi-millionaire. She has asked her father to remove her from his will rather than increase her own inheritance tax liability. Mr Jones now wishes to leave his estate equally between his other two children.
What’s the problem?
Mr Jones should be advised of his daughter’s ability to bring an application for lack of reasonable provision from her father’s estate under the Inheritance (Provision for Family and Dependants) Act 1975. She is unlikely to do this currently, as she requested that her father amend his will and her own wealth would be a factor that would weigh against any application she makes.
It should be noted however that the courts in a 1975 Act application consider the facts at the time of the application, not the facts at the time that the will was made. His daughter’s financial situation could for example have deteriorated drastically by the time of the testator’s death, meaning that she does now wish for some provision from the estate.
Rather than distribute to the other two children, Mr Jones could be advised to place either the whole estate or just his daughter’s share of the estate into a discretionary trust. This will allow his trustees flexibility to take into account his daughter’s circumstances at the time of death to decide whether or not she needs provision.
If the trustees decide that she does need provision, they could make provision for the daughter from the trust, either giving it to her outright and ending the trust or keeping the trust intact and giving her benefit over a period of time.
If the trustees decide that she does not need provision, the trustees could distribute to the other children outright and end the trust.
In either approach, the trustees should be guided by a detailed letter of wishes. It may also be recommended to have independent trustees.