There will always be clients who refuse to sort out their Will or those that have a small estate that will not be liable to inheritance tax but want advice on how to ensure that their remaining family can benefit from their estate as quickly as possible, especially if there are investments that could be used to pay off debt of a beneficiary. The time required for obtaining a Grant of Probate can be lengthy and it is often the case that an estate that appears simple at outset, manages to throw up all sorts of anomalies that have to be looked into before the estate can be finalised.
A Probate Trust can help in these circumstances as it provides speedy access to the assets of the Trust on death.
How it works
Here is an example designed to represent a typical situation and does not relate to any particular individual.
Alan is 70 years of age. He was previously married to Davina who died in 2008. He remarried Karen in 2015. Alan and Karen live in a house owned by Karen. Alan has owned an investment bond for many years (it was formerly owned jointly with Davina). Alan is the sole surviving life assured.
The bond is currently valued at £100,000. Alan occasionally takes withdrawals to top up his pension income.
Alan and Karen have a joint current account holding £6,000. Alan has a cash ISA valued at £4,000 and a stocks and shares ISA holding £10,000. The ISA manager has confirmed that on Alan’s death it will encash the ISAs and pay the proceeds to Karen without requiring a Grant of Probate.
Obtaining a Grant of Probate can potentially involve delays. Most companies will not allow the proceeds of a bond surrender to be paid out without a Grant of Probate.
Alan has a Will which leaves half his assets to Karen and half to his daughter, from his first marriage, Samantha.
Samantha has a substantial mortgage and Alan has suggested that she uses her inheritance to reduce her borrowings. She agrees that this is a wise strategy.
If Alan sets up a Probate Trust with the investment bond as the asset within it, it will enable Samantha to get cash quickly – without having to incur the costs (and delays) of obtaining a Grant of Probate.
Alan duly assigns the bond to the
trustees (Alan, Karen and Samantha) of a Probate Trust. Although this is a transfer of value for inheritance tax purposes, no tax will be payable as Alan has not used any of his IHT allowance of £325,000 (for tax year 2017/2018 and 2018/2019). Alan can access the bond to supplement his pension as required with the trustees’ consent.
On Alan’s death the bond will come to an end (Alan being the last life assured).
As a result of using the Probate Trust, the proceeds of the bond will be paid directly to Karen and Samantha in such proportions as they request, avoiding the potentially lengthy delays of obtaining a Grant of Probate. The taxation implications for any beneficiaries will depend on how the bond was set up.
Who is it for?
The Probate Trust is designed for people who want to:
- Have speedy access to the funds on death for their family
- Avoid the need to obtain a Grant of Probate on death (in respect of the bond)
- Ensure the proceeds of the bond are paid in accordance with their wishes and without the need for a Will
- Have access to the bond throughout their lifetime at the discretion of the trustees
Who should not consider a Probate Trust?
The Probate Trust is not designed:
- To reduce Inheritance Tax (IHT).
- It provides no IHT advantages.
- For jointly owned bonds
- For people with a total estate value (including the value of the bond to be placed in trust) over the current IHT allowance of £325,000 (for tax year 2017/18 and 2018/19).
Where you come
Naturally you are best placed to create these Trust documents for the client.
Where we come in
If it is our client we can assist with details of the potential beneficiaries and trustees.
In all cases we can choose the most appropriate investment and investment portfolio to suit the client.