Education and Child Matters

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Wills & Trusts

 

HOW WILLS & TRUSTS CAN BENEFIT YOUR CHILDREN

Before you read this webpage about wills & trusts allow us to give you some definitions of terms and words that are commonly used when discussing wills & trusts.

  • ESTATE – The word estate with regards to wills & trusts refers to all your assets, pensions, property, chattels, possessions, investments, life insurance policies, businesses, rights and licences that you own.
  • INTESTATE – This is when an individual passes away without a valid will so the court will have to distribute their estate according to the rules of intestacy. Only a married or civil partner can automatically inherit this estate. A person who passes away with no will is referred to as an intestate person.
  • TRUSTEE – This is an individual who you have appointed in your will to manage your estate until your children inherit them at the age set in your will or by law. 
  • ESTATE PLANNING – Estate planning in the process of sorting out your estate and who and how it will be distributed in the event of your death. Estate planning is important especially to minimise paying inheritance tax. 
  • INHERITANCE TAX – Inheritance tax is the compulsory tax paid to the government from your estate when you pass away. Inheritance tax is the paid on the value of the estate over a certain threshold set by the government. 

As of March 2023 the threshold is £325,000.00

The inheritance tax rate is 40% on any part of your estate over the threshold.

  • EXECUTOR – This is the individual who deals with your estate and will when you pass away and is responsible for paying the inheritance tax to the government.
  • BENEFICIARIES – The beneficiaries are the individuals (your children) who inherit and/or benefit from your will or trust.
  • PROBATE – A probate is a legal document giving an individual the right to distribute the estate of a person who has passed away in accordance with their will. Normally a person who is named as the executor in a will, needs to apply for probate.

LINK TO GOVERNMENT WEBSITE FOR HOW INHERITANCE TAX WORKS.

Please also note that we are giving you a very simple overview on this subject because we would like to educate you on the basics of this subject and its importance. After reading this webpage you may need to consult a professional for further advice or updated legislation. 

WHAT IS A WILL?

A will is a legal document stating your wishes of what you would like to happen to your estate once you pass away.

Your will will name the individuals, organisations and charities who will inherit a part of or all of your estate.

Your will will also state the individuals or organisation who will manage your will and distribute your estate.

You can also write down who you would like to take care of your underage children as a guardian in the event of your death when there is no other individual alive who has parental responsibility for your child.

A will will become effective after your death and after probate has been obtained from the court.

Another name for a will is testament.

WHAT IS A TRUST?

You can make a trust in conjunction with a will.

A trust is a legal document that states what will happen to any part of your estate that is assigned to it. You can assign some or all of your estate while you are alive or when you pass away. Which parts of your estate are assigned to the trust upon your death will be stated in your will. 

A trust is useful if you want to distribute your estate in the manner that you prefer.

The trust will state who will manage the trust, who will benefit from the trust (most likely your children), and how income and provisions will be distributed and how the trust fees will be paid.  

You can assign any asset you own to the trust. When you do, the ownership of the asset will change from you to the trust owning it.

You can make a revocable trust which can be changed and amended while you are alive. When you pass away this ‘revocable’ trust will become an irrevocable trust which cannot be changed. 

WHY IS YOUR WILL OR TRUST IMPORTANT FOR YOUR CHILDREN?

Your will or trust can safeguard your children as follows:

  • If you are married or in a civil partnership and you pass away without having a valid will, your children will not inherit from your estate. You can make provisions for your children in your will.
  • You can name the individual(s) in your will who will take care of your children as a guardian when you pass away in the event there is nobody else alive who has parental responsibility for your child. The court will appoint this person. Otherwise your local authority will appoint who they think is suitable.

LINK TO OUR L.I.P HELP GUIDE FOR GUARDIANSHIP

LINK TO OUR L.I.P HELP GUIDE FOR SPECIAL GUARDIANSHIP

LINK TO OUR L.I.P HELP GUIDE FOR TESTAMENTARY GUARDIANSHIP

  • Wills and trusts can be written in such a way that money, assets and property can be distributed to minimise inheritance tax.
  • If your will or trust states how your estate is distributed and shared between your children or relatives then this will prevent infighting as the decisions of who gets what has already been made by you. 
  • You can make sure that step-children, foster children and vulnerable members of your family are provided for in the event of your death. Step-children and foster children will not automatically inherit parts of your estate unless you state otherwise in your will. 
  • You can write down the age when you would like your children to inherit your estate and have full control over what they have inherited. This will allow you to make sure they are mature enough to look after your estate when they inherit it. If you do not state an age your children will inherit your estate, then your children will inherit it at the age of 18 years (17 years in Scotland). You can write down the name of the person(s) you would like to manage and look after your estate until your children reach the age you have set to inherit your estate. This person(s) is called a trustee. 
  • While your children are under the age that you have set when they will get full control of their inheritance you can make provisions that they will get money from your estate to spend. Your children can only withdraw these funds with the permission of the trustee.
  • You can put conditions on your children’s access to your estate in your will or trust.
  • You can make specific requests in your will. An example of this is instead of your children inheriting your estate you will provide them with an income instead. You can also specify when your children get this income and what it can be used for (education, buying property).
  • You can make sure certain family heirlooms are inherited by your children.

DO YOUR CHILDREN INHERIT YOUR ESTATE IF YOU DO NOT HAVE A VALID WILL WHEN YOU PASS AWAY?

If there is no will when you pass away then your children will only inherit your estate if you do not leave a surviving married or civil partner. The estate will be divided equally amongst your children. 

If there is no will and you have a surviving married or civil partner, your children will only inherit from your estate if your estate is worth over a certain amount. As of March 2023 this figure is £270,000.00

WHAT IS THE 7 YEAR RULE?

If you give a gift to your child (such as money, property, stocks and shares and chattels) and you stay alive for 7 years and over after giving the gift, you will not have to pay any inheritance tax on the gift as long as the law has been met.

You can give your home to your children. There will be no inheritance tax to pay if you stay alive for 7 years or more after giving it away. 

You can stay in the property if you pay rent to your children, pay part of the bills and live there for at least 7 years or more. 

You do not have to pay any rent to your children if you only give away part of your property and your children live there also.