Trusts
A Will trust is a legal arrangement created within a Will to manage and protect assets for specific beneficiaries after the testator’s death.
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The Right of Residence Trust (ROR) is a form of Immediate Post-Death Interest (IPDI) Trust incorporated into a Will. The ROR allows the testator to give a chosen beneficiary a right to reside in a specified property either for their lifetime or for a specific time period. This beneficiary is called the occupant, and they never own the property absolutely: they only have the right to live in it for the chosen duration or until a specified event. When the occupant no longer has the right to benefit from the property – when they die, move out, or when the trust ends – the property passes on to beneficiaries known as remaindermen. These beneficiaries are named in the Will at the outset.
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The Property Protection Trust (PPT) is a type of Life Interest Trust incorporated into a Will. It allows the testator to give a lifetime interest in their share of the main residence (or the whole beneficial interest in the main residence if this is solely owned) to a beneficiary of their choice, who is then known as the life tenant. The testator also chooses other beneficiaries at this time, who are known as the remaindermen.
The life tenant will never own the property (or share) absolutely; instead, they have the right to lifetime enjoyment of the property and any income that may arise from it. This means that they have the right to live in the property or, if the property is rented out, to take any rental income as it arises.
When the life tenant’s life interest ends – either when they die or when the trust is terminated by agreement – then the property share passes absolutely to the remaindermen beneficiaries. Commonly, these are the testator’s children.
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The Flexible Life Interest Trust (FLIT) incorporates two separate Life Interest Trusts into a Will. The first holds the main residential property (or share), much like a PPT; the second captures the residue other than chattels (personal possessions). Effectively, the FLIT extends the protection and ring-fencing offered by the PPT to assets beyond the residential property.
The FLIT designates a life tenant, who has a lifetime interest in the property and the residue. This means that they have the right to live in the residential property, and to take any income that may arise from it or from the residue (i.e. from further rental properties or income producing investments). The life tenant never owns the assets in the trust absolutely. When the life interest ends – either because the life tenant has died or because they have agreed with the trustees to wind up the trust – then the assets pass absolutely to the remaindermen beneficiaries, who are named in the Will.
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A Discretionary Trust is a trust that leaves the distribution of trust property (either capital, income, or both) to the absolute discretion of the trustees.
As with other Will trusts, the standard discretionary Will trust does not come into effect until the testator dies, at which point the trust is set up and the assets are appointed into the trustees’ names. Trustees have the right to retain and hold assets, or to distribute some or all assets to anyone from a given list of named beneficiaries, as they see fit. These beneficiaries are chosen by the testator, but they have no absolute right to inherit from the trust. Instead, they are “potential” beneficiaries, who stand to inherit only if the trustees decide to make distributions of capital or income.
Because of the extent of these discretionary powers, a letter of wishes must always be created to help the trustees understand the testator’s intentions and the rationale behind the creation and running of the trust.
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The Asset Protection Trust (APT) is a lifetime trust, i.e. one set up during your lifetime rather than within your Will. The APT provides a means by which you can continue to use and enjoy your assets during your lifetime but on your death the assets in the trust will pass to your chosen beneficiaries.
WHY USE AN ASSET PROTECTION TRUST?
The APT is a simple, straight forward and cost-effective solution designed to help you protect your assets against a number of different risks and pass them on to beneficiaries in a controlled and efficient way via your chosen trustees. The trustees will have discretion as to how to distribute your assets but they will do this in accordance with guidance and instructions set out by you in a letter of wishes for them to follow so that they know your wishes