Equity Release FAQs

Equity release schemes are aimed at those 55 or over looking to free up some equity in their property, while continuing to live there and without making monthly repayments. Needless to say, there are both benefits and drawbacks to these types of schemes, where answers to the following frequently asked questions will help homeowners to make an informed decision.

What is equity release and how do this work?

A growing number of people in later life are finding themselves ‘property rich but cash poor’, where equity release is the process by which a homeowner can extract some or all of the wealth tied up in their property by way of regular payments or a cash lump sum.

There are two main types of equity release schemes:

•   a lifetime mortgage: where a loan is secured against the property, but ownership retained, and the loan repaid from the homeowner’s estate once they die. The interest on the loan can either be repaid at regular intervals, or rolled up and repaid on redemption of the loan;

•   a home reversion plan: where part or all of the property is purchased by the scheme provider, but the seller will be permitted to live in the property rent-free under a lifetime lease. When the property is sold, typically after the seller dies or moves into long-term care, the provider will be entitled to their percentage share by way of repayment.

What are the benefits of equity release schemes?

There are various benefits to equity release, although the advantages involved will depend on the nature of the scheme. In broad terms, equity release schemes will:

•   give you tax-free cash, with the freedom to spend this on anything you want

•   allow you and others to benefit from your wealth during your lifetime

•   enable you to continue living in your current home, without the upheaval of moving.

The ‘no-negative equity guarantee’ offered by lenders approved by the Equity Release Council also means that the amount of money borrowed against the value of your home, plus any rolled-up interest, can never go above the value of that property.

What are the drawbacks of equity release schemes?

There are various drawbacks with equity release, although again the disadvantages will depend on the nature of the scheme. However, in broad terms, equity release schemes will:

•   be unlikely to pay you the full market value for your home, where you will receive far less money, comparatively, than you would from selling the property on the open market

•   diminish the value of your estate, where this will reduce the amount of inheritance that your beneficiaries would otherwise receive after you die

•   potentially reduce your right to means-tested benefits, including funding for social care.

Which equity release scheme is right for me?

For each of the two equity release schemes, there are various options available, where it’s important that both the immediate and future needs of the homeowner are matched with the right type of scheme. The importance of seeking expert advice from a qualified professional cannot be underestimated, so that you fully understand the long-term implications, with sufficient knowledge of the risks, rewards and legal obligations under your preferred scheme.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

Taking the stress out of financial disclosure

When a couple separates, it’s important for each party to fully understand the financial worth of their ex before entering into any negotiations as to the division of marital or partnership assets. So as to provide transparency, and to enable the court to make or approve an order that’s fair in all the circumstances, the parties are required to provide ‘financial disclosure’. Below we look at how this process works and how to minimise the stress involved.

What is financial disclosure?

Financial disclosure is the process whereby both parties to a marriage or civil partnership are required to exchange financial information in relation to their respective incomes, property and any other financial resources which each has the benefit of. This includes any assets held on both a joint and individual basis, together with valuations, as well as assets acquired prior to, during and even after the marriage or civil partnership has irretrievably broken down.

In some cases, both spouses or civil partners may be fully aware of each other’s financial worth, including any solely-owned assets — whilst in others, one party may have no knowledge whatsoever that particular assets exist, let alone how much these are worth.

How is financial disclosure made?

The parties are legally required to provide full and frank disclosure of their financial and other relevant circumstances, in a clear and accurate way, otherwise risk having an order set aside and being ordered to pay any associated costs. Moreover, if a party is found to have been deliberately untruthful, criminal proceedings may be brought against them for fraud.

This means that the parties will be required to complete, and sign with a statement of truth, what’s known as Form E. This is a lengthy and detailed legal document that can potentially run into hundreds of pages long, once all documentary evidence in support has been attached. Needless to say, this process can be daunting, and extremely stressful, when an individual is already having to deal with the emotional fallout from the breakdown of their relationship.

How can the stress be taken out of financial disclosure?

Even though completing Form E is no easy task, the following three top tips should be followed to help ease the pressure when going through this process:

• Read Form E carefully: your solicitor can help guide you through this process, although Form E itself sets out exactly what’s required so that you know what to expect. By printing off a copy of Form E, you can make one of these your draft 'to do' list. Once you’ve got all the necessary information, you can print a fresh copy to complete and forward to your solicitor.

• Be organised: by starting your ‘to do’ list early, gathering the relevant documents to accompany Form E, you will minimise the stress of meeting any deadline. A great deal of the information required will need to be requested from third parties, such as home and pension valuations, where it can take weeks to receive this information. It’s important that you give yourself plenty of time to prepare what you’ll be required to disclose.

• Be thorough: the parties are required to be completely up front about all the assets they own, even if their ex has no knowledge of these. Equally, it’s important not to make any accidental omissions, where there may be significant costs and other consequences for failing to disclose an asset or source of income, even if this was a genuine mistake.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

The importance of warranties when buying a business Vs the importance of disclosure when selling a business

The importance of warranties when buying a business so as to protect the purchaser against undisclosed risks cannot be underestimated. Equally, from the seller’s point of view, providing written disclosure of any existing issues to limit liability for any warranties made can be crucial. Below we look at how warranties work in the context of two competing principles: ‘caveat emptor’ (let the buyer beware) versus ‘caveat venditor’ (let the seller beware).

What are warranties and how do they work?

Warranties are contractual statements regarding the affairs of the company or business being sold, given by the seller to the buyer prior to the point of sale. These are usually incorporated into the sale/purchase agreement and can cover a wide range of areas, from ongoing employment disputes to ownership of assets and the condition of plant and equipment.

If a seller provides a warranty but it subsequently transpires that this was untrue at the time it was given, the buyer may have a claim in damages against the seller. In this way, warranties can be used to protect a purchaser from any undisclosed risks when buying a business.

Under English law, unless warranties have been made prior to the point of sale, a purchaser will be afforded very little protection when buying a business. This is due to the well-established principle of 'caveat emptor' or ‘buyer beware’, under which the buyer alone is responsible for checking the viability of, and risks attached to, a business before proceeding.

Nonetheless, where warranties have been made by the seller, the extent of any liability under those warranties can be limited, albeit only where the seller has provided full and formal disclosure of any pertinent issues against a particular warranty. Under the lesser-known principle of ‘caveat venditor’ or ‘seller beware’, absent detailed written disclosure — even where the buyer was otherwise aware of the matter complained of and for which damages are sought — the seller is likely to remain liable in full in respect of any warranties given.

What are the potential consequences of breach of warranty?

In the recent decision of Equitix EEEF Biomass 2 Ltd v Fox & Others [2021] EWHC 2531, the High Court ordered that the sellers pay the buyer £11 million in damages for breach of multiple warranties contained within a written share sale agreement.

On its’ facts, the buyer purchased the entire issued share capital of an energy company. The sale agreement contained multiple warranties given by the sellers, including a warranty that the company’s biomass boilers were in good condition. Following the sale, faults with the boilers led to the loss of its’ sole customer to whom the company supplied heat energy.

The court rejected the seller’s argument that they’d disclosed against the warranties and/or that the information was within the buyer’s actual knowledge, such that the warranties could not be relied on. Notwithstanding that the buyer had been aware of certain issues, the court found that the sellers’ liability for any warranties given would only be limited if specific disclosure had been made, prior to completion, against the warranty in question. Equally, disclosure must be made in sufficient detail for the buyer to fully understand the true picture.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

New EPC requirements for commercial leases

With new minimum energy efficiency standards (MEES) for non-domestic private rented properties due to come into force next year, landlords should already be taking steps to meet the necessary energy performance indicator. Below we look at what these changes mean for commercial landlords, as well as the proposals for commercial MEES beyond 2023.

What is the minimum level of energy efficiency required?

With the phased introduction of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, subject to prescribed exemptions, private landlords of non-domestic properties in England or Wales have not been permitted to enter into new lettings with an EPC rating of less than ‘E’ — including lease renewals and lease extensions — since 1 April 2018.

As from 1 April 2023, this requirement will apply to all private rented properties in England and Wales, even where there’s been no change in tenancy arrangements. This means that the MEES threshold will apply to existing commercial leases, where landlords will not be able to continue to let properties with either an ‘F' or ‘G’ EPC rating, albeit subject to any exemption.

What steps should commercial landlords be taking to meet this standard?

Given that the clock is now ticking until the new MEES for existing commercial lettings comes into force, landlords should be assessing the EPC ratings of any rental properties within their portfolio to see if they fall below the required threshold.  Where necessary, they should also be putting in place a pro-active strategy to make adequate energy efficiency improvements to any properties with a current ‘F’ or ‘G’ EPC rating.

This could mean, for example, replacing windows and doors, or installing more energy efficient heating and water systems. It will also mean liaising with existing tenants to enable works to take place, ideally during closing hours to minimise any business interruption.

As it’s the landlord’s obligation to ensure that the EPC meets the minimum rating, this responsibility cannot be passed to the tenant. Further, some or all of the cost of any energy efficiency improvements can only be passed to the tenant via any service charge, if the terms of the lease allow for this.

What are the consequences of non-compliance with the new EPC rating?

Once the regulations have fully come into force, it will be illegal for a landlord to let out a non-domestic private-rented property which falls below a minimum 'E' EPC rating —unless, for example, all the relevant energy efficiency improvements for the property that can be made have been made, and the property remains sub-standard, or one of the other prescribed exemptions apply. Further, even where a legitimate exemption applies, this must be validly registered on the PRS Exemptions Register before this can be relied upon.

In short, in the majority of cases, landlords will be unable to lease any building that has an EPC rating lower than E, where non-compliance could result in enforcement action and a sizeable fine, potentially running into tens of thousands of pounds.

What further changes are likely to take place when it comes to energy efficiency?

In addition to the changes due to take place next year, further changes to MEES for commercial properties are expected across the UK. The 2023 changes are effectively a precursor to reaching the government’s new set target for all commercial rented properties to have a minimum EPC rating of 'B' by 2030. This is also likely to be implemented in two stages, with a phased incremental increase to a C-rating by 2028.

As such, although it may be tempting for landlords to target the bare minimum EPC ‘E’ rating due to come into force in 2023 for existing commercial lets, by aiming higher, landlords will be future-proofing their properties from more stringent standards soon likely to take place.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

Does cryptocurrency go into the matrimonial pot on divorce?

When couples cannot agree on the division of marital assets on divorce, or even where agreement has been reached but the court is required to approve a draft consent order, consideration must be given as to the nature and value of any assets owned or available to either party. In this way, a court order can be made that’s fair in all the circumstances.

In most cases, this will include all physical assets, such as the marital home, as well as any savings or investments, such as stocks and shares, and occupational pensions. But what about digital assets, such as cryptocurrency? Should this also form part of the matrimonial pot?

What is cryptocurrency?

Cryptocurrency is a form of digital currency based on blockchain technology and secured by cryptography. Bitcoin is the best-known cryptocurrency, and the one for which blockchain technology was invented. It’s essentially a medium of exchange, such as the pound sterling, but is virtual and uses encryption techniques, both to control the creation of monetary units and to verify the transfer of funds. Cryptocurrencies don't have a central issuing or regulating authority, instead using a decentralised system to record transactions and issue new units.

Can cryptocurrency be taken into account?

When making a financial remedy order on divorce, the court is under a duty to have regard to all the circumstances of the case, taking into account a wide range of different factors. These factors include the income, earning capacity, property and any other financial resources which each party to the marriage has or is likely to have in the foreseeable future.

As with any other form of money or investment, this means that cryptocurrency is an asset, albeit a digital asset, that the court will almost certainly put into the matrimonial pot when assessing the parties’ financial worth and considering what’s fair in all the circumstances.

That said, whether or not cryptocurrency will form part of the overall settlement ordered or approved by the court will ultimately depend on the totality of resources available to either party — to be considered in the context of their respective financial needs, obligations and responsibilities. The welfare of any children under 18 will be an overriding factor here, where relevant, although other factors can include the age of the parties, the length of the marriage and the standard of living enjoyed by the family before the breakdown of the marriage.

Does cryptocurrency have to be disclosed?

Given the encrypted nature of cryptocurrency, it can be tempting for any party in possession of this type of digital asset to decide not to disclose to the court either its’ existence or its’ true value. There may even be cases where a spouse may attempt to dissipate more easily traceable physical assets through investment in cryptocurrency in order to defeat their spouses’ claim.

However, when asking the court to make a financial remedy order on divorce, or even when seeking the courts’ approval of a draft settlement agreement, the parties are under an ongoing duty to provide full and frank disclosure, including disclosure of any digital assets.

In cases of non-disclosure, where this comes to light, the court has the power to set aside transactions and order that such assets be added back to the matrimonial pot for distribution upon settlement. If an order has already been made, the court can also overturn such order, with significant costs and other financial consequences for the non-disclosing party.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

Making a gift and minimising inheritance tax

Gifting money, property or possessions to a loved one during your lifetime can be such a great feeling, although the joy of giving can feel even greater when you also factor in the potential tax benefits on death. In fact, lifetime gifts can be one of the best ways to minimise the amount of inheritance tax that your estate will be liable to pay when you die. But what are the exemptions when it comes to lifetime gifts, and how can you make the most of any tax relief?

What are the inheritance tax rules relating to gifts?

Some lifetime gifts are automatically exempt from inheritance tax, whereas others are known as potentially exempt transfers (PETs) to which a 7-year rule applies.

Gifts that won't count towards the value of your estate include an annual exemption of up to £3,000 during every tax year, as well as the small gift exemption, where you can make an unlimited number of small gifts of up to £250 per person. Wedding or civil ceremony gifts, and payments toward the living costs of a child or elderly relative may also be exempt.

In contrast, PETs are gifts that are not automatically exempt under the rules, but will not be chargeable to inheritance tax if you survive for a period of more than 7 years from when the gift was made. This means that if a gift is made more than 7 years prior to the date of death, regardless of the nature or size of the gift, no inheritance tax will be payable. Accordingly, once you’ve given someone a gift, the inheritance tax clock will start to tick.

In most lifetime gift scenarios, this essentially means that you’ll have to survive for 7 years or more before your gift becomes 100% inheritance tax-free, although taper relief may still be available where the total value of any gifts made within the 7-year period prior to death exceeds the relevant tax-free threshold. Under the taper relief rules, inheritance tax is payable on a sliding scale, from the full rate of 40% for gifts made less than 3 years prior to the date of death, decreasing to as little as 8% for gifts made within 6-7 years.

How can the tax relief from lifetime gifts be maximised?

There are various ways in which the relief from inheritance tax can be maximised. In particular, giving someone a gift early in your lifetime increases the likelihood of you surviving for 7 years thereafter, and that gift becoming inheritance tax-free. You’ll also have the pleasure of seeing a loved one benefit from your generosity during your lifetime.

To understand more about the ways in which you can maximise the relief applicable to lifetime gifts, in this way minimising the inheritance payable by your estate, expert advice should be sought as soon as possible. The sooner you start to plan ahead, and make lifetime gifts, the faster the inheritance tax clock will start to tick in your favour.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

Blackhurst Budd Celebrate Newly Qualified Solicitor

Blackhurst Budd Solicitors is delighted to announce that Demi Perrin has completed her legal training contract and has qualified as a Solicitor, joining the firm’s family law department as of 1st June 2022.

Within the family department Demi will assist clients with a wide range of services including divorce, financial settlements, arrangements for children and cohabitation matters.

Demi joined Blackhurst Budd in August 2019 after completing a Masters in Law from UCLAN. Her training contract started in September 2020.

Sharon Emslie, Head of Family Law commented:

“Congratulations to Demi on qualifying as a Solicitor. Her success is well deserved and is the result of many years of hard work. We’re delighted she has qualified with the firm I wish her the best of luck as she moves forward in the next stage of her career.”

Demi Perrin added:

“Undertaking my training contract during the coronavirus pandemic has been challenging to say the least, but I am thrilled to have now qualified as a Solicitor and would like to thank the firm for their support.”

How are trust assets treated on divorce?

Following a break-up, trusts are one way in which the economically stronger spouse may seek to ring-fence property to protect this from going into the matrimonial pot on divorce. Solely owned assets may have even been placed in trust prior to getting married, in addition to or in lieu of a pre-nuptial agreement. However, it’s a common misconception that trusts assets cannot be taken into account by the court when assessing the parties’ financial worth, and considering what’s fair in all the circumstances when it comes to the division of marital assets.

Below we look at how any trust interest will be treated on divorce, where separated spouses are unable to agree on a financial settlement and the court is asked to intervene. 

What are trusts and trust assets?

There are various different types of trusts that can contain a whole host of trust assets. In broad terms, a trust can contain both money and property given to it by a ‘settlor’.  These assets will then be legally owned by appointed ‘trustees’ who hold the assets for the benefit of those specified within the terms of the trust, known as the ‘beneficiaries’.

For instance, a residential property placed in a lifetime trust may allow the beneficiary of that trust to reside in the property for the duration of their lifetime, or a beneficiary may benefit from interest on savings placed in a discretionary trust, albeit at the trustees’ discretion.

Trusts can be set up for various legitimate and non-marital reasons, including tax avoidance, to give third parties beneficial interests in property, to provide a discretionary income for a class or classes of beneficiaries, and estate planning for future generations. In some cases, trusts may also be set up specifically to protect the wealth of the settlor-spouse on divorce.

Will trust assets be ring-fenced on divorce?

When it comes to financial remedy proceedings, the court may be called upon to look beyond the complexities of any trust mechanism to examine the reality of the financial situation.

The fact that trustees have legal ownership of any trust assets, or control over the way in which these are managed, doesn’t automatically mean that any benefit derived from the trust should be disregarded when it comes to the matrimonial pot. This is the case, even if the trust was put in place prior to getting married, or otherwise set up with a genuine purpose. There may also be allegations over whether or not a trust has been solely created as a means of defeating the financial claim of the economically weaker spouse in anticipation of divorce.

Either way, under section 25 of the Matrimonial Causes Act 1973, the court has a duty to consider all financial resources available to both parties, either now or in the foreseeable future, including any trust interest. The court also has wide and varied powers to make orders that achieve a fair outcome in each case, including awarding the non-beneficiary party a greater share of non-trust assets. This means that trust assets may be treated as either income or capital that can be brought into account, regardless of the reasons behind the trust.

Needless to say, the court is likely to take an even more robust approach when bringing trust assets into account if it considers the trust to be a sham. It’s therefore vital that expert legal advice is sought prior to entering into a trust arrangement, either prior to getting married or following the breakdown of a marriage, or when pursuing or defending trust asset claims in the context of divorce and financial remedy proceedings.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

Using financial consent orders in divorce

Getting divorced, and deciding upon the division of marital assets, doesn’t need to be contentious. Once the Divorce, Dissolution and Separation Act 2020 comes into force on 6 April 2022, and provided you and your ex agree, a joint application can be made for a divorce order to officially bring your marriage to an end. You can also agree a draft consent order as to how your finances are to be split, to be put before the court for approval.

For thousands of separated couples in England and Wales, this will mean that the entire process of ending their marriage, and dividing any matrimonial property, can be dealt with on both a joint and amicable basis. The mere fact that you no longer want to live together as husband and wife doesn’t mean that this process should be acrimonious. On the contrary, minimising conflict can often be in everyone’s best interests, especially for any children.

Below we look at how financial consent orders work in practice, both for married couples wanting to get divorced, as well as for couples looking to dissolve their civil partnership.

What is a financial consent order?

A financial consent order is an agreement used by parties to a divorce, or dissolution of a civil partnership, who wish to settle their matrimonial or partnership finances amicably.

By agreeing a consent order, the parties are able to retain control over who gets what, typically without any intervention by the court. Still, a draft order will need to be formally approved by a judge, so that the court can satisfy itself that the financial provision made for either party is fair, and that there hasn't been any undue pressure placed on the more disadvantaged spouse.

Having the order signed off by a judge will make your agreement legally binding, ensuring that either party can enforce its’ terms in the event of non-compliance. This will also prevent any further financial claim by you or your former spouse. This means that even where a financial agreement has been reached prior to applying to get divorced, or where there are no matrimonial assets to be divided up, a clean-break order should still be put before the court to ensure that all financial ties are severed between you and your ex once the divorce is finalised.

How is a financial consent order approved?

To obtain a consent order, first and foremost, both you and your ex must reach an agreement as to how your finances will be split. This is often best done with the help of solicitors acting for each party, helping you each to explore what’s fair in all the circumstances. It’s also best to seek expert help when it comes to drafting an order, even where agreement has already been reached, as the order must be carefully phrased in certain legal terms.

The order will need to set out in detail the agreement between the parties as to how the marital home, and any other matrimonial assets, will be dealt with, together with the mechanisms and timings for the order to be implemented. For instance, a financial consent order may specify when the family home will be sold and how the net proceeds will be split.

An application must then be made to the court for the terms of the draft financial consent order to be approved, providing a statement of the parties’ financial information in support. Needless to say, this statement must contain sufficient information upon which the court can make an assessment of what’s fair. It must also contain full and frank disclosure, as any new information that comes to light at a later date could provide any disadvantaged party with a basis upon which to apply to have the order set aside.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

Using a Will Trust to protect a vulnerable loved one

Planning for your family’s future once you’ve gone can feel daunting. For those of you with a disabled child or grandchild, or other vulnerable loved one, this feeling may be amplified, not least because leaving a substantial inheritance could create all sorts of practical problems.

In particular, a loved one may not have the mental capacity to manage their own finances or live independently. You may also have concerns, regardless of their age, of exposing a loved one to a risk of exploitation — after all, a sizeable legacy could put them in an even more vulnerable position when it comes to opportunists. Equally, being bequeathed money or assets could impact their eligibility for means-tested benefits, leaving a loved one no better off.

By including a Trust in your Will, you can make financial provision for a disabled relative when you’re no longer around, safe in the knowledge that the money will be managed by Trustees for the benefit of that individual during their lifetime. In this way, your loved one will not be forced to look after their own finances, or be exposed to any risk of exploitation from unscrupulous characters, and nor will any inheritance affect their benefits.

What is a Will Trust?

A Will Trust is a legal arrangement, contained within a Last Will and Testament, that places any legacy left to a loved one in the hands of appointed Trustees. Upon your death, the Trustees will be tasked with managing that inheritance on behalf of the beneficiary, for example, by ensuring that your loved ones’ care needs are adequately met.

You can choose who to appoint as Trustees, including family members or even professionals. You can also leave a Letter of Wishes, setting out your preferences on how the Trust assets should be used, helping to guide the Trustees' decisions once the Will Trust comes into effect.

What are the risks of not having a Will Trust?

For some of us, the idea of putting in place a formal trust arrangement to financially protect a vulnerable loved one may seem wholly unnecessary, especially where there are, for example, siblings of a disabled child or grandchild that can be entrusted with their legacy. However, this is a risky strategy, even if you implicitly trust a surviving relative to honour your dying wishes. This is because an outright gift to another family member means that this legally belongs to them, where unforeseen circumstances may arise, such as debts, divorce or death.

For instance, if you have two adult daughters — one with a mental disability and one without — you may choose to leave your entire estate to the mentally able daughter, provided they promise to use half of that inheritance to financially support their sister. However, if the daughter without the disability accumulates debts or gets divorced, this will expose everything she owns, including the money intended for your disabled daughter, to creditors and divorce proceedings. If that daughter then dies a few years later, her estate may be distributed equally between her children, leaving your disabled daughter with nothing.

Why is a Will Trust beneficial?

A Will Trust offers a number of benefits for the parents or grandparents of disabled children, or those otherwise looking to make provision for a vulnerable loved one, including:

•   the beneficiary will be able to benefit from the assets at the Trustees' discretion, without having to personally manage their own finances

•   the beneficiary won’t own the assets contained within the Trust, so they cannot be coerced into using the money for other purposes and it won’t affect their means-tested benefits

•   the Trust assets aren’t owned by anyone else in a personal capacity, so cannot form part of a person’s estate for the purposes of debt, divorce or death.

A Will Trust can be used to effectively ring-fence the inheritance earmarked for a vulnerable loved one. However, specialist advice advice should always be sought, ensuring that any trust mechanism contained within your Will is tailored to your family’s needs after you’re gone.

Legal disclaimer 

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.