The Question
I have seen this week that if you place your house in a trust fund this means who ever I leave it to can access it straight away without going through the long, drawn-out process probate.
Is this correct and what is the difference between a trust fund and a will?
Andrew’s Answer
Unfortunately, things are rarely straightforward so it might be helpful to start by noting what probate is, why it exists and some of the wider considerations.
Probate is the process by which a person’s will is proven and through which the court recognises the appointment of the personal representatives (executors) to manage the affairs of a person who has died (there is a similar process of administration but the term probate is used here for both).
This ‘Grant of Probate’ is what the executors then use to prove to the registrars (or holders) of the assets that they are entitled to deal with them. However, not all institutions require the sight of a grant. They can, but most – in particular, banks – have become increasingly relaxed in allowing executors to close bank accounts without a grant.
This may have arisen through the delays in obtaining probate (although those delays are now diminishing as the court catches up).
Institutions which will almost always require sight of a Grant of Probate include HM Land Registry and share registrars. As land is registered with HM Land Registry, where there is a property held in someone’s sole name at the time of their death, then a Grant of Probate will be required to transfer or sell it.
Note that this is where a property is held in a sole name. If the property was held in joint names then the position is different and it is entirely likely that a Grant of Probate would not be needed to deal with the property after death because joint ownership can be a type of trust.
This is what then leads to discussions over trusts to avoid the need for probate and there are a few choices. Many people will have shares or other assets for which a Grant of Probate is required anyway so the complexity and cost of creating trusts may offer little benefit.
Probate is also used as a ‘gateway’ for inheritance tax reporting. The court will not issue the Grant of Probate until the assets and tax position has been reported to HMRC. Even if no Grant of Probate is required, however, it does not necessarily avoid the compliance element for tax reporting and where this is required, it often represents the greatest expense for ‘probate’ as a lot of detail is needed. So ‘avoiding probate’ does not necessarily reduce the expense notably.
More about trusts
There are also different types of trusts. The simplest type of trust is a ‘bare’ trust and this is a structure whereby the property is transferred into the names of the trustees whom you appoint. The value of the property (for instance when it is sold) is held for the beneficiary.
By keeping yourself as the beneficiary and naming other trustees, you can avoid the need for a Grant of Probate on death (for the property alone) and you will not have made a gift as it will still belong to you, so there are no negative tax implications.
There is a compliance obligation associated with this however, as the government maintains a register of trusts for anti-money-laundering purposes.
There are costs associated with creating the document and transferring the property and payment may also be required if it is necessary to make and maintain updated details on the trusts’ register.
If a Grant of Probate would have been required anyway, there is likely to be no benefit to this but it is unlikely to do any harm. If there are difficulties with the trustees in the future, for instance you no longer speak to them, they lose capacity or die, it can also be more complicated than if you hadn’t undertaken the planning in the first place.
Some national will writers will often prepare a type of trust that involves giving a portion of your home into a discretionary trust (normally £325,000 or the Nil Rate Band).
With this type of trust, the trustees can choose how, when and how much of the trust to pay to any number of beneficiaries that you list. The value of the property in excess of this is then held on the above bare trust for you. This is a notably more complex arrangement that can introduce some negative tax implications, particularly around the Residence Nil Rate Band, it is generally even more expensive to create and there may be more ongoing compliance for tax without necessarily any benefit beyond a bare trust.
This can also be expensive to ‘unpick’ if required during your lifetime and subject to any change with the changes to tax legislation. This may be more likely with the recent change in government.
For some people, in some limited circumstances, a bare trust can help to avoid the need for a Grant of Probate and may reduce the (often nominal) costs arising after death but in many cases offer no benefit and some planning can often make matters dramatically worse.
As always, specific experienced or qualified advice is important before undertaking any estate planning.
Andrew Titmus is partner, head of estate planning and private client solicitor at Parfitt Cresswell
