Estate Planning
What is a precatory trust?
 
Precatory trusts are simply gifts from made by a testator to a beneficiary whereby the assets are passed in accordance with the deceased’s wishes.An example would be that you left a sum of £30,000 to your son, to be used to pay for your grandson’s education.You are expressing your wishes as to how the gift should be spent.

It is most commonly used to allow flexibility in the distribution of personal chattels. For example, your will would gift all personal chattels to your spouse, a separate document called a letter of wishes could then be created which you can change as often as you like. Unlike other assets such as the family home, chattels and possessions are subject to more frequent changes; you may acquire other possessions, sell or gift them.

For example, say you have 2 sons named X and Y, you have gifted your car to X but he won’t really benefit from it anymore, as a sales rep, he always has a brand new company car. You decide that Y would get much more use from it, so simply change your letter of wishes. This is much more convenient, rather than having to keep updating your will. A letter of wishes should therefore be kept up-to-date and stored with the will.

Precatory Trusts and Inheritance Tax

In relation to inheritance tax it will be treated as an absolute gift to the beneficiary. This means, as in the example above, if the gift was to the spouse it will be exempt. According to current IHT law, when a named beneficiary gifts assets according to the testator’s wishes within 2 years of their death, it will be treated as if it was passed under the Will to the transferee. If there are no exemptions, it will not be a transfer of value or potentially exempt transfer and IHT will apply.

What are Precatory Words?

Precatory words imply an intention to create a trust and may lack certainty. They may express a wish, desire, hope or expectation but are not definitive. For example, ‘I would expect this to be donated to charity.’ If there are any disputes concerning the testator’s intentions, a court would decide whether or not the words created an express trust.

To be valid, they must satisfy 3 certainties; there must be certainty of intention, that the testator wanted to create a trust. There must be a definitive subject i.e. the asset/property. Lastly, there must be a definite object; beneficiary or benefiting cause.

IWC’s Estate Planning Services

IWC offer comprehensive estate planning services to ensure you’re fully protected. We can help you to safe-guard your assets, ensure your estate will be distributed in accordance with your last wishes and plan to mitigate inheritance tax.

We offer free consultations where we’ll discuss your assets and circumstances and devise an individual plan. This can even be done at a home visit. As highly qualified, specialist practitioners, we can the draft any documents you may require.

If you’d like help with the creation or validity of precatory trusts, you can call our free advice line on0800 612 6105.

Call us for a quote, instant help or impartial advice on freephone 0800 612 61050800 calls are free - 0333 are local rate - Just click to Call
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