Who can set up an WPT?
Anyone at any age, as long as they are mentally capable of doing so. To have the requisite mental capacity the Settlor must understand the nature and effect of his or her actions and the value of his or her assets.
What type of assets can be placed within the WPT?
Commonly clients place their house (or their share in it if it is owned jointly with another) and savings within the Trust. Because currently capital of £14,250 or under is disregarded for means-testing in relation to Local Authority financial assessments, we usually recommend that any savings or other investments over that figure are placed within the Trust’s protection.
Some assets however may be disregarded and can be left outside the Trust.
Are there any assets which cause a problem if they are placed within an WPT?
Care should be taken in relation to any asset with a built-in Capital Gain where the client cannot claim e.g. Principal Private Residence relief as since Finance Act 2006 a "disposal" for CGT purposes potentially arises on the transfer to Trustees of a Settlor-interested Trust
Can other assets be added later?
Yes, although care needs to be taken to ensure if any asset is added later this does not constitute a deliberate deprivation of capital.
Is there any limit on the value of assets placed within an APT?
No but if the client is placing assets valued in excess of his or her available Nil Rate Band within the Trust this would create an immediate charge to lifetime Inheritance Tax (20% on the value over the current Inheritance Tax nil rate band placed within the Trust). The current Nil Rate Band is £325,000 per person unless previously used.
When is the best time to set up the WPT?
As soon as possible. Local Authorities can retrospectively review the circumstances in which an WPT was set up at any time. Clearly if the WPT was set up at a time when the client was in good health, living independently and had no prospect or intention of entering long term care then there should be no problem. However Local Authorities can review medical and other records and so any pre-existing medical condition or even comments made while in discussion with Local Authority social workers or carers could become relevant at a later date.
Can an WPT be set up after a client enters Care?
No. This would be a deliberate deprivation of capital.
What if one spouse enters long term Care but the other does not?
In these circumstances the spouse not in care can "sever" their share in any jointly owned property (Non Mutual Severance) and set up their own WPT in relation to their own assets. The same qualifications apply regarding mental capacity, pre-existing conditions and reasonable forseeability of entry into care for that spouse but all things being equal this should at least enable that spouse’s assets to be protected. While one spouse remains in the matrimonial home the capital value of the half owned by the spouse in care and one half of his or her income MUST be disregarded for assessment purposes. Similar rules apply in relation to the disregard of the house as a capital asset if a child over 60 or a disabled child under 60 or another close relative is living in the house.
Why are Trustees needed?
Trustees are appointed to hold Trust assets on behalf of all beneficiaries. They are granted powers under the terms of the Trust and are required to act for the benefit of the beneficiaries at all times. While acting as Trustees they cannot personally benefit from the Trust assets.
Who should be Trustees?
Because of the above rules the Trustees appointed (between 2 and 4 in number) should be as independent as possible so that it can be demonstrated that they do not have their own interests in mind and are doing everything they should for the benefit of the Principal Beneficiary while he or she is alive and thereafter as directed within the Trust. The Trustees should ideally not be beneficiaries but if you have no-one else then they could be. Because The Society of Willwriters Trust Corporation are used to acting as Trustees many clients may prefer to appoint them as their Trustees and this ensures independence and that the Trust is dealt with in accordance with the Principal Beneficiary’s intentions, wishes and needs. This is at a fixed yearly cost. Please ask for details.
Who appoints the Trustees and when?
This is done by the Settlor when the Trust is set up and in a separate Deed. The Settlor is the only person with power to hire or fire the Trustees and can do so at short notice if he or she is unhappy with the Trustees’ actions at any time. If the Settlor loses mental capacity at any time the Protector (s) steps in to hire and fire Trustees and direct them how to deal with assets e.g. sell the house when the Principal Beneficiary enters long term care.
Who are the beneficiaries of the Trust?
Whoever the Settlor decides. Clients usually have their children and grandchildren or other beneficiaries named in their Will in mind. We will therefore need the names and addresses of all those the Settlor wishes to benefit and their relationship to him or her (if any).
Who are the Protectors and what do they do?
Protectors appointed are usually one or more of the beneficiaries and they step in only when the Principal Beneficiary (Settlor) loses mental capacity to protect his or her interests and those of the beneficiaries.
How long does the WPT last and in what circumstances does it end?
Technically the WPT lasts for 125 years but it will usually be closed down by the Trustees upon the death of the Settlor. However if the Settlor decides it is appropriate the Trust can continue after the Settlor’s death if this is required. Some clients have a particular reason for wishing this e.g. one of the beneficiaries is disabled and the Settlor wishes them to benefit from the Trust but not be assessed as having an absolute right to the capital because perhaps they are in receipt of means-tested benefit. If there are such relevant circumstances we need to know this when setting up the Trust.
How does the WPT work in relation to the Settlor’s Will?
We should always be supplied with a copy of the Settlor’s Will so that we can ensure if there are any particular provisions in the Will the WPT provisions do not conflict with this. We can draft the WPT to close down on the Settlor’s death and the proceeds of the Trust can then either be divided equally between the other beneficiaries (with children taking a predeceasing parent’s share if required) or the Trust can provide that the Trust fund passes to the Executors of the Settlor’s Will to be dealt with under the terms of the Will.
If the client’s Will includes a gift to the Settlor’s spouse the WPT should probably provide for distribution of Trust funds to the beneficiaries of the Trust so that the spouse does not receive the Trust fund as this would be outside his or her own WPT and might therefore be available to pay that spouse’s care fees in the future.
If however the Settlor’s Will has specific gifts or legacies or a Nil Rate Band Discretionary Trust then the Trust provisions should pass the funds on the Settlor’s death to the Executors of the Will for distribution instead.
What if the client wishes to sell their present home and purchase another?
This is no problem. To place a house, or a share of a house within an WPT it will be transferred to the Trustees. If the client wishes to move the Trustees simply sell the house and purchase another. Any left-over sale proceeds are still protected by the Trust and will simply be added to other savings (if any) and invested by the Trustees.
What if the house is mortgaged?
In that event the property will not be formally transferred into the names of the Trustees as the mortgage lender would not agree to this but instead a second Charge in favour of the Trustees is executed by the Settlor so that their share of the property after the mortgage is repaid is owned by the Trustees and therefore protected by the Trust.
What if some of the savings within the Trust are needed by the Settlor?
If this is for the Settlor’s benefit e.g. to pay for holidays, household items, a new car, then the Trustees will release funds for this to the Settlor. If however they consider this might create a "deliberate deprivation of capital" problem then they will raise this with the Settlor and ensure he or she understands this. There should be no problem so long as it can be demonstrated that any payment is for the Settlor’s benefit.
What if the client wishes to apply for Equity Release after the Trust is set up?
In order for any Equity Release scheme to be set up it would be necessary for the property to be transferred back to the Settlor then a Charge set up as with any other mortgage, the Charge would be protected at the Land Registry so that the property could not be sold without the Trustees being aware of the sale and agreeing to it as in the case of a standard mortgage.
If the property is transferred to Trustees whose name is on the house insurance policy?
It is essential that any house insurance provider is advised of the fact that the house is now owned by Trustees. If this is not done it could potentially invalidate any insurance policy. There will be no problem with this as Insurance Companies frequently provide insurance for Trustees in this type of situation.