Settlor named as default beneficiary

Trusts Discussion
1

Please can you advise on a settlor-interested lifetime settlement we have been asked to review for a client?

It had been prepared by another law firm which has subsequently gone bust.

The settlor and two Partners at the former law firm are appointed as trustees. The settlor is to receive all income. Potential beneficiaries regarding the capital are the settlor and his family. The settlor is named as the sole default beneficiary.

The settlor has confirmed that the purpose of this trust was never in relation to estate-planning and is aware that it will be treated as a GROB.

Our concern is in relation to the settlor being named as the default beneficiary. If the settlor were to go into care then we believe that the local authority could make a claim that this trust is for all intents and purposes an asset of the settlor and could be used to pay towards the settlor’s care fees.

Is it possible to assign other parties to become the default beneficiary/beneficiaries? Or would any change just bring into question the intent of why the trust was set up (which the client advises was to protect their assets for the family and from any marital issues their children may have)?

Any advice would be gratefully received!

2

Whilst I believe there is no prohibition on an assignment of one’s entitlement as a default beneficiary, if the concern is that by being the default beneficiary the trust assets could be taken into account when the settlor is, say, assessed for care fees, does not assignment of such interest undermine the purpose for doing so as it may well be treated as “intentional deprivation” and, thereby cause the value of the trust fund to be brought back into account?

Perhaps there might be a change of trustees, with the settlor also retiring as trustee, and for the new trustees to (revocably?) exercise the power of appointment in favour of members of the family (perhaps mirroring the content of the settlor’s will?)

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals