Give Family Immediate Access to Assets on Death with a Probate Trust

A Probate Trust is a trust that is set up in life (not on death via your Will) to ensure that both you (the person putting wealth/assets in the trust) as the ‘settlor’ and your beneficiaries can access during life.

In short, you set up a trust, and you then transfer money, wealth, assets and property to the trust as you see fit.

Disposal of Assets and Capital Gains Tax

• Be careful to only transfer assets that may not subject to capital gains tax such as your main home, cash, ISAs, insurance bonds, and many vintage/classic cars.
• Stock and shares gains, general investment account gains, cryptocurrency gains, additional properties and land gains may be subject to capital gains tax on disposal, so you should seek advice before transferring these assets to the trust.

Cons of a Probate Trust

• Your own inheritance tax liability is not reduced as you still have access to the assets inside the trust i.e., it is a gift with reservation.
• Assets inside the trust the trust should not be income producing such as cash deposit interest and rental properties as income is taxable on trusts at 50% after the very low tax free income allowance.

Pros of a Probate Trust – Setting Up Whilst You are Healthy

• It avoids the need to wait for probate to be granted (usually 6-9 months) to access assets inside the trust on death.  This may help loved ones through difficult times or even provide funds to pay inheritance tax bills much sooner to gain probate.
• It avoids the need to approach the Office of the Public Guardian to seek permission to deal with assets in life, if you later lose capacity and a Lasting Power of Attorney is in place.
• The beneficiary’s estate e.g., your children’s estate and subsequently their bloodlines estates will not be subject to inheritance taxes on wealth that you have left in a ‘probate trust’ that they subsequently have access too.  This may mean lower inheritance tax bills for future generations.
• It avoids assets being included in any divorce settlement for future generations if they are benefitting from wealth that you have created and provided access for them in the trust (assuming a discretionary trust is used).
• It avoids assets being included for creditors/bankruptcy proceedings for future generations if they are benefitting from wealth that you have created and provided access for them in the trust (assuming a discretionary trust is used).
• It  may avoid your wealth being included in any care fees means test (assuming a discretionary trust is used) provided you set the trust up when you were healthy with no illnesses that may lead to an expectation of needing care in later life.
• You can borrow money from the trust, meaning that you have debts on death that are repayable from your other ‘non-trust’ assets which reduces the value of your estate and therefore your inheritance tax liability.

A probate trust (in life) works in a very similar way to a discretionary will trust (on death) apart from the fact that the will trust only comes into force on death with your surviving spouse able to access assets in you will trust and borrow money from your will trust (thereby further reducing the surviving spouse’s estate on 2^nd death).

How Much in Trust?

• We suggest do not transfer more than up to inheritance tax nil rate bands (£500,000 each including private residence nil rate bands), so £1m for a legal married couple or civil partnership.
• You can transfer to the trusts more than unused inheritance tax allowances, but these would be classed as Chargeable Lifetime Transfers (CLTs) and subject to inheritance in life at 20% payable immediately.

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