Probate Administration and Trust Administration – pros and cons

Clients often ask if they should transfer part of their estate into a trust in lifetime, to avoid the need for a grant of probate upon death. This can be a useful strategy for various reasons, but there are also administrative and accessibility issues to consider before doing so.

Currently, the wait time for a grant of probate is a minimum of 16 weeks from submission of the application to the Probate Registry and can be much longer if a paper application is required rather than an online submission. This can cause inconvenience and distress for families when assets cannot be accessed until probate has been granted – causing financial problems for a surviving spouse or either beneficiaries. Additionally, if a house in an estate is to be sold, the delay in receiving the grant of probate can cause the sale to become very protracted and even for a buyer to withdraw due to the delay.

If, however, a client has transferred assets into a trust during their lifetime, then a grant of probate is not required for those assets to be distributed to the named beneficiary(ies) and can therefore save a great deal of time and expense in having to apply for probate.

An individual can transfer assets up to the value of the nil rate band (currently £325,000) into a lifetime trust. If a transfer exceeds this sum, then a lifetime inheritance tax charge of 20% is levied upon the value of assets in excess of the nil rate band. This of course is 50% less than the death rate value of inheritance tax at 40% and so although is a tax levied in a lifetime, does reduce the death rate by half.

Once assets are transferred into the trust, they are transferred into the legal names of the trustees. The person who set up the trust (the settlor) can be a trustee but there are potential adverse tax implications if the settlor is also to be a beneficiary and advice should be taken on this point. The trust deed would name the potential beneficiaries – for example, the children and grandchildren of the settlor.  There are potential benefits in protecting assets from care home fees by transferring them into trust, but again, this is a wide topic and outside the scope of this introductory blog. Always seek professional advice when planning for care.

There are different types of trust explored in other blogs by mlplaw, such as discretionary trusts and life interest trusts. The broad position is that once assets have been transferred into a trust, and you are not longer ‘retaining a benefit’ from those assets then they are regarding as being ‘outside’ of your estate for inheritance tax purposes, and those assets will not require a grant of probate to be dealt with upon your death.

If you have transferred your home into a trust, then upon death a grant of probate would not be required to sell the property, however, the value of the property may still be regarded by HMRC for inheritance tax purposes as being in your estate, as you have continued to live in the property therefore ‘retained a benefit’ from this. There are ways to avoid this trap however which advice should be taken on.

A further consideration with transferring assets into trust is that you may no longer be able to have use or easy access to them, so if you are likely to require access to those assets in future, by transferring them into trust, you ‘lose control’ of disposal of those assets as they are then legally owned by the trustees.

Therefore, although there are advantages of transferring assets into trust, for tax planning and possible care home fee protection reasons and to avoid the need to obtain probate, there are serious considerations to be taken into account and professional advice should always be sought.

Here at mlplaw we are experts on trust and probate matters and advise extensively upon estate planning to ensure the best outcome for tax effectiveness, and care home fees planning whilst ensuring that a client has access to all the assets they need for a long and comfortable retirement. Please call Doris Raggatt, Legal Director on 0161 926 1538 or dorisr@mlplaw.co.uk for a 30-minute free advice appointment.