Find Definitions for Common Terms, Clauses, Trusts and Documents in Estate Planning

Clause of No Contest (also known as an “In Terrorem Clause”) – A clause that can prevent beneficiaries from contesting the Will by stating that anyone who challenges the Will forfeits their inheritance.

Hotchpot Clause – A clause in a Will that requires any advances or gifts made during the testator’s lifetime to a beneficiary to be taken into account (brought into “hotchpot”) when distributing the estate.

Maintenance and Education Clause – permits the Trustees to pay for the maintenance and education of minor beneficiaries, typically until they reach a specified age.

Non-provision clause – is a statement in a Will explicitly stating that a particular person or group of people are intentionally excluded as beneficiaries. This clause clarifies the testator’s decision to exclude certain individuals from receiving any part of the estate, which can help prevent disputes or claims against the estate from those who might have expected to inherit.

Re Ratcliffe Wording – a clause to apply where a bequest is split between inheritance tax exempt beneficiaries (i.e. a charity or a spouse/civil partner) and non-exempt beneficiaries (anyone else). This clause expressly records that no grossing up of the non-exempt shares is to occur, so the non-exempt beneficiaries will receive a relatively smaller share than the exempt. See also The Benham Clause.

Receipt by Minors Clause – A clause in a Will that allows the executor or Trustee to pay or transfer a minor beneficiary’s inheritance to their parent, guardian, or another responsible adult, instead of directly to the minor.

Residue and Residual Beneficiary Clause – Specifies who will inherit the residue of the estate after debts, taxes, and specific bequests have been paid.

Revocation Clause – Declares that all previous Wills and codicils made by the testator are revoked, ensuring only the most recent Will is valid.

Statement Excluding s.18 Wills Act (effect of divorce) – is a declaration made in the Will to prevent the automatic revocation of certain provisions upon divorce. By including this statement, the testator can expressly state that they wish for their former spouse to still benefit from the Will, despite the divorce, overriding the default legal effect of Section 18.

Statement Excluding s.33 Wills Act 1837 –  Excludes the effect of section 33, where otherwise if a descendant of the testator was to benefit under their Will but predeceased, that share would automatically pass to their own descendant(s).By including this statement, the testator can ensure that if a descendant beneficiary predeceases them, the gift lapses and does not automatically pass to their  descendants.

Substitution Clause – Provides for an alternative beneficiary if the original beneficiary predeceases the testator or is otherwise unable to inherit.

Survivorship Clause – A clause that requires a beneficiary to survive the testator by a specified period (often 28 or 30 days) to inherit.

Survivorship Period Clause – Requires a beneficiary to survive the testator by a specified period to inherit under the Will, typically to avoid complications with simultaneous deaths.

The Attestation Clause – is a statement at the end of a Will or Trust containing the statements and signatures of the testator, witnesses (and perhaps also translators) required by law for the document to be effective.

The Benham Clause – a clause to apply where a bequest is split between inheritance tax exempt beneficiaries (i.e. a charity or a spouse/civil partner) and non-exempt beneficiaries (anyone else). Requires the grossing up of the share of the non-exempt beneficiaries so that all beneficiaries receive the same net amount. Also see Re Ratcliffe Wording.

The Contemplation of Marriage Clause – explicitly states that a Will has been written in anticipation of a specific marriage, preventing the Will from being revoked upon marriage.

The Cy Pres Clause – allows a charitable gift in a Will or Trust to be redirected to a similar charitable purpose if the original charity or purpose no longer exists or is unachievable.

The Default Clause – provides instructions on how the Trust or estate should be handled if the primary beneficiaries or conditions fail, or at the end of a Trust ensuring the assets are still distributed.

The European Succession Election – allows individuals in certain EU countries to elect for the succession law of their nationality to apply, rather than the law applicable in the location of the assets.

The Exclusion of s.31 Clause – removes the application of Section 31 of the Trustee Act 1925, which would otherwise provide that trustees can pay the income of a trust for a minor beneficiary’s education or be accumulated and that when the minor reaches the age of 18 any accumulation must be paid to them.

The Extension of Trustee Powers – clause expands the standard legal powers of Trustees, allowing them to perform actions beyond their usual statutory powers.

The Incorporation of the STEP Provisions Clause – incorporates standard clauses from the Society of Trust and Estate Practitioners, providing recognised and flexible Trust management powers.

Advance Decision – is also known as a Living Will, is legally binding upon medical professionals and allows an individual to specify their preferences for medical treatment or interventions in the event they become unable to make decisions due to incapacity, ensuring their healthcare wishes are followed by medical professionals.

Expression of Wishes – is a non-binding document used alongside a Trust or a Will to provide guidance on how the person making the wishes (the settlor or testator) would like their assets to be distributed or managed, or how they would like their Trust to be administered. Although it does not impose legal obligations, it can reinforce the settlors wishes and be used to explain them.

Lasting Powers of Attorney, Health and Welfare – allows the appointed Attorney(s) to make decisions about the donor’s personal health and welfare, including medical treatment, care arrangements, and daily living needs, but only when registered and when the donor lacks mental capacity.

Lasting Powers of Attorney, Property and Financial Affairs – enables the Attorney(s) to manage the donor’s financial matters and property, such as paying bills, handling bank accounts, and managing property transactions, and can be used immediately upon registration even if the donor still has mental capacity, unless otherwise specified.

Severance of Joint Tenancy – converts a joint tenancy into tenancy in common, allowing each joint owner to own a distinct share of the property, which can then be passed on according to their Will or estate plan, rather than automatically transferring to the surviving joint tenant(s) upon their death.

18-25 Trust – A Trust for children of the testator that allows assets to be held until they are between 18 and 25 years old. It’s often used to provide for education and other needs until the beneficiary is more financially responsible and can offer taxation advantages.

Age Contingent Trust – A Trust that distributes assets to beneficiaries only when they reach a specific age, such as 18, 21, or 25, ensuring the beneficiary receives their inheritance when they are more mature.

Bereaved Minors Trust – A Trust for children under 18 who inherit from a deceased parent, providing for their needs until they reach adulthood, at which point the Trust ends and the assets are distributed to the child. It can offer tax advantages.

Charitable Trust – A Trust established to benefit charitable organisations or causes. The Trust enjoys tax exemptions and must be used solely for charitable purposes.

Discretionary Trust – A Trust where Trustees have the discretion to decide if, when, and to whom the Trust assets or income are distributed among a group of potential beneficiaries.

Flexible Life Interest Trust – A type of Trust that grants a beneficiary (usually a spouse) the right to income or use of the Trust assets during their lifetime, with flexibility for Trustees to advance capital or income to them or other beneficiaries as well.

IPDI (Immediate Post-Death Interest) Trust – A Trust created by a Will where a beneficiary has an immediate right to income or use of the Trust assets after the testator’s death, typically for the rest of their life.

Life Interest in Property Trust – This Trust allows a beneficiary (often a spouse) to live in or receive income from a property during a specified period, often their lifetime. At the end of the life interest, the property passes to another beneficiary (often children).

Nil Rate Band Discretionary Trust – A Trust that uses the inheritance tax nil rate band (the tax-free allowance) to reduce the overall tax liability on an estate, often set up on the first spouse’s death to benefit the surviving spouse and/or children.

Property Protection Trust – is a type of Trust designed to protect an individual’s share of property, typically their home, ensuring that their share passes to chosen beneficiaries, such as children, while allowing a spouse or partner to live in the property for the rest of their life.

Right of Occupation Trust – A Trust that allows a beneficiary to live in a property for a specified period or until a particular event (like remarriage), after which the property passes to another beneficiary or is sold.

Vulnerable Person’s Trust – A Trust designed to benefit a vulnerable person, such as someone with a disability. It offers special tax advantages and does not normally affect the vulnerable person’ entitlements to means tested benefits.

A Precatory Trust – is an outright gift made with a wish or moral obligation but doesn’t impose legal duties on the recipient.

Bare Trust – A simple Trust where the beneficiary has an absolute right to both the income and capital, often used for minors.

Charitable Trust – A Trust created for charitable purposes, benefiting a recognised charity or the public, and enjoying special tax exemptions due to its charitable status.

Declaration of Trust – A legal document that formally records the terms of an existing Trust.

Discounted Gift Trust – is an estate planning tool that allows an individual to make a gift into a Trust, typically for inheritance tax planning purposes, while retaining a fixed income from the Trust for life. The “discounted” element refers to the fact that the gift’s value for tax purposes is reduced due to the retained income.

Discretionary Trust – A Trust where Trustees have full discretion over how, when, and to whom the Trust income or capital is distributed among a class of beneficiaries, allowing tailored financial support based on need.

Expression of Wishes (Lifetime Trust) – A non-binding document accompanying a lifetime Trust that expresses the settlor’s wishes on how the Trustees should manage and distribute the Trust assets, guiding them without imposing legal obligations.

Flexible Life Interest Trust – Similar to a standard life interest Trust but with added flexibility, allowing Trustees to advance capital or income to other beneficiaries, providing adaptability to changing circumstances.

Flexible Reversionary Trust – where an individual transfers assets into the Trust but retains the potential for future access to those assets through reversionary rights. The Trust allows flexibility for trustees to manage and distribute assets to beneficiaries at their discretion, while the settlor’s rights to the assets are deferred for a specific period. This structure can help reduce inheritance tax liability while maintaining access to the funds.

Half Secret Trust – the existence of the Trust is disclosed in a Will, but the details of the beneficiaries and the terms of the Trust remain hidden. The Will indicates that the trustee holds assets on trust, but the full terms are only known privately between the testator and trustee.

Interest in Possession Trust (General) – A Trust where a beneficiary has an immediate and automatic right to the income generated by the Trust assets, usually for life, with the capital passing to another beneficiary after their death.

Life Insurance Policy Trust – A Trust designed to hold a life insurance policy, ensuring that the payout goes directly to the trust and then on to the ultimate beneficiaries without forming part of the deceased’s taxable estate.

Loan Trust – where the settlor lends money to the Trust, rather than gifting it. The settlor can request the loan’s repayment at any time, while any growth on the loaned assets remains outside the settlor’s estate, potentially reducing inheritance tax liability.

Pension Death Benefit Trust – A Trust set up to receive pension death benefits, allowing greater control over who benefits from the pension and providing potential tax advantages.

Pilot Trust – A Trust (settled with a nominal initial sum) set up during a person’s lifetime, designed to receive additional assets in the future, such as payments from pensions, insurance or settlements.

Property Protection Trust – is a legal arrangement designed to protect a person’s property, often a family home, from being fully depleted due to events like long-term care costs. It ensures that a portion of the property is preserved for beneficiaries.

Secret Trust – is a type of Trust in which the existence and terms of the Trust are not disclosed in a Will. The testator privately informs the trustee of the trust’s details before their death, and the trustee is legally bound to carry out the wishes of the testator, even though these instructions are not written in the Will.

Termination of Trust Deed – formally ends a Trust. It outlines the process by which the trust’s assets are distributed to beneficiaries and the responsibilities of the trustees are concluded. The termination may occur when the trust’s purpose is fulfilled, its term expires, or by mutual agreement of the parties involved, in compliance with legal requirements.

Variation of Trust Deed – refers to a legal document that modifies the terms of an existing Trust. It allows trustees or beneficiaries to alter provisions related to the Trust, such as changing beneficiaries, updating how assets are managed, or amending distribution terms.

Vulnerable Person’s Trust – A Trust designed to benefit a vulnerable person, such as someone with a disability. It offers special tax advantages and does not normally affect the vulnerable person’ entitlements to means tested benefits.