The Asset Allocation Trust (AAT) is an estate planning tool that can be an extremely effective step, allowing you to relax with the knowledge you have done everything you can to protect your hard-earned assets for your chosen beneficiaries.
- EFFECTIVE ON BOTH DEATHS, NOT JUST ONE – The efficiency of Will trusts are limited to the asset protection of the first to die, the AAT is effective upon both deaths.
- FLEXIBILITY FOR BENEFICIARIES – Use of the Asset Allocation Trust allows beneficiaries to choose how and when they inherit, protecting their inheritance if it is needed.
- NO TAX DOWNSIDES – The Asset Allocation Trust still provides full access to the Residential Nil Rate Band (RNRB), and removes the need for 10-yearly IHT and exit charges.
- CARE COST PLANNING – Assets in the trust can be liquidated and used to assist with care and quality of life funding as the trustees choose, rather than as ordered by a Local Authority.
Case Study 1 – Mrs Jones
Assets: Her house is currently paid off and valued at £280,000 and she has savings of £40,000. Mrs Jones is fit and healthy.
Family: Mrs Jones lost her husband four years ago. They had two children together, both are now in their 40s.
Her initial wish is to make sure her estate goes to her two children. On further discussion, her son is not happily married, and she hasn’t spoken to her daughter for five years.
Why the AAT would work for Mrs Jones:-
- AVOID CONTENTIOUS PROBATE – She may not want her daughter to receive an equal share in her estate, by placing her major asset into the trust she can avoid a contentious probate scenario as the daughter will not be able to contest the assets in trust providing Mrs Jones survives 6 years.
- PROTECT INHERITANCE FROM SPOUSES – She is also then able to protect her son’s inheritance in the event he does not wish to receive his inheritance when she dies due to possible issues with his wife.
- WHAT GRANT OF PROBATE? – Using the Asset Allocation Trust, Mrs Jones is also removing the need for a Grant of Probate to be obtained for the assets in the trust.
- PROTECT ASSETS FROM HERSELF – She is protecting the assets from herself. She may meet somebody and end up disinheriting her own children without realising.
- CARE HOME FEES (SSSHHHH!) – If she goes into care, there is strong evidence to show she was not
attempting to avoid a creditor, so her house cannot be forcibly used to pay for her care BUT her chosen trustees CAN use the asset to pay for her care and/or control access to her funds to avoid fraud or other influences. - NO BENEFIT OF PROPERTY WILL TRUST – As Mrs Jones doesn’t have a partner with whom she can sever the tenancy to protect her share of the house, an Asset Allocation Trust is the recommended way of protecting her assets.
Case Study 2 – The Smiths
Mr and Mrs are both happily married and have two children together, both are now in their late 20s.
Assets: Their house is currently valued at £780,000 and have savings of £340,000.
Relationship: Mr and Mrs Smith have been married for 35 years, both have been married before. They have two children together, both are now in their late 20s and one child from previous marriages, each in their late 30s.
They aren’t bothered about care fees but they want to ensure the children are all treated fairly. They have both had wills previously and understand the benefits of using will trusts to protect assets against “Accidental Disinheritance” of their children.
- USING WILL TRUSTS – can protect the assets of the first to die. HOWEVER, using an AAT enables them BOTH to protect their assets, no matter if they die first or second. If the survivor remarries they may not want the new spouse to receive all of the assets when they die, using the AAT ensures the children will inherit.
- PROTECT INHERITANCE FROM SPOUSES -Having both gone through a divorce they find the ability to protect their own children’s inheritance at the time of their death very important, by using an AAT the children have choices available.
- WHAT GRANT OF PROBATE? – Using the Asset Allocation Trust, the Smiths are also removing the need for a Grant of Probate to be obtained for the assets in the trust. This saves both time and possible expenses for the Smith’s family.
- PROTECT ASSETS FROM THEMSELVES – They are protecting the assets from themselves. They like the idea of the assets being held in a trust so liquidating is something that takes thought, preventing rash decisions later in life.
