How is your trust deed in Scotland affected if you inherit money or property? Here’s our guide.
Inheritance is inevitably a bittersweet experience. But it’s considerably more bitter when you don’t get to enjoy the money you inherit. So what happens when you come into money or property before, after or during the lifetime of a Scottish trust deed?
Will my inheritance be taken to pay my debts?
The answer to that question depends on timing. Legally, your inheritance is deemed to have taken place at the date of the deceased’s death.
- If that date of death was before you applied for a protected trust deed, any money you inherit will be included in the assets used by the trustee to pay off debts. If you inherit property that isn’t your home, you could be required to sell it.
- If the date occurred after the Scottish trust deed was approved but before it was discharged, the inheritance will be treated as ‘acquired assets’ and you must inform the trustee of your inheritance.
- If the date occurred after the Scottish trust deed was discharged, the inheritance is usually yours to keep.
Inheriting before you apply for a trust deed
Before the trust deed: Should I use my inheritance to pay down debt?
If the inheritance arrives before your application for a trust deed, the question of whether you should use it to pay debt depends on whether the inheritance would be enough to avoid the need for a trust deed (or other form of debt management plan).
If using your inheritance would clear the debt entirely, or make sufficient in-roads to avoid you needing to seek debt help then yes, using your inheritance to pay off debt is likely to be a wise move.
But if you use the inheritance to pay off debt and would still need to apply for a trust deed (because the amount you inherit isn’t enough to solve your debt problems), you may find that causes more problems than it resolves.
That’s because, under a Scottish trust deed, the trustee seeks agreement with your creditors and needs the majority to approve your application for it to become protected (that is, for all creditors to be bound by the trust deed, so they stop chasing you for the debt).
If you pre-empt the process by using an inheritance to pay off amounts of your choosing to various creditors; or worse, you choose to pay some creditors (e.g. family and friends) ahead of others, you are likely to reduce your chances of the remaining creditors approving the trust deed. That may leave sequestration (bankruptcy) as your only viable option.
So if you inherit money but expect to still need a Scottish trust deed, speak to a debt advisor before making any payments.
Before the trust deed: I expect to inherit soon, but I don’t know exactly when or how much. What should I do?
A trust deed Scotland will usually be in place for four years. If you suspect a forthcoming inheritance might help you avoid such an arrangement, but you need debt help to cover the interim, you may find a debt management plan may be more appropriate than a trust deed.
Before the trust deed: What if I spend my inheritance quickly?
An inheritance you receive before you apply for a Scottish trust deed is yours to do with as you wish. You may run into problems, though, where your debts are already mounting. If you don’t use the inheritance to pay down the debt, spend the money on something else, and then attempt to apply for a trust deed, your creditors may claim that you have deliberately tried to dispose of assets that could have been used to repay them. At the very least, that may stop them agreeing to your trust deed.
- This can be a complex legal area and you should seek professional advice before making any application for a trust deed or other form of debt management.
Before the trust deed: Is there any way I can avoid any future inheritance being taken by the trustee?
If you suspect you may need to apply for a trust deed, sequestration or other form of debt relief in the future, you could suggest that the testator (i.e. the person writing the will) write a new will, or vary the terms of their existing one, so that your share goes to someone else (for example, your children), or that you hold the money/property in trust for someone else.
There are issues with this. Trusts can be complex and expensive to set up. And although removing yourself as a beneficiary means the assets can’t be taken by the trustee and used to pay off your debts – it also means you can’t use them either because they belong to someone else.
Inheritance during the life of the trust deed
During the trust deed: I’ve inherited money or property – what should I do?
Within 28 days of your becoming aware of the inheritance you need to inform the trustee. Your trustee then has 42 days from receiving your notification to decide whether to claim some or all of it. If the trustee does decide to make a claim on your inheritance, they must do so in writing.
It would be rare for a trustee not to claim assets you inherit, but there are circumstances where you may be able to keep some of the money (see below).
During the trust deed: Could I delay my inheritance?
Don’t be tempted to ask the executor of the will to take their time in the hope that your inheritance will only be paid once you’ve been discharged. Because the official date of inheritance is the date of death, the law will already deem you to have received the inheritance, irrespective of when you actually receive it.
During the trust deed: If my inheritance is used to pay my debts, will my trust deed finish early?
Possibly, but not necessarily. Remember, your trust deed sets out an amount you must pay each month as agreed between your trustee and your creditors. That amount is based on your assets (i.e. what you can afford to pay). If you inherit an amount of money what you can afford to pay increases, and therefore so does the amount you are expected to repay.
It’s possible that the entire inheritance could be absorbed and your repayments continue as normal for the full duration of the trust deed. A large inheritance, however, could be sufficient to discharge the trust deed early.
During the trust deed: Can I use my inheritance to pay off my trust deed?
Yes, although as noted above, that final settlement may be considerably more than the amount you’ve been paying under the terms of your trust deed. If you come into a large sum of money, the trustee will be required to recalculate the total you owe, which will include trustee costs. If the inheritance is sufficient to cover it all, you can settle the debt and your trust deed will be discharged.
During the trust deed: Can I keep any of my inheritance?
Possibly. If, for example, you inherit some money just as you are made redundant, or as your car needs replacing, the trustee may agree to let you keep a proportion of the money you inherit.
You must not spend any money that you inherit without the trustee’s permission.
During the trust deed: If I pay off my trust deed early, will my credit score return to normal?
No. Taking out a protected trust deed will damage your credit score and the effect will be (almost) immediate, so paying it off won’t stop your score being affected. Paying off the debt early, however, will have a positive effect. And because you’ll be able to begin rebuilding your credit score much earlier than usual, your score should gradually recover – and certainly quicker than if your trust deed was in place for the full four years.
During the trust deed: I used some of the inheritance money before I told my trustee about it. Is that ok?
No. If you inherit during the life of a protected trust deed, you shouldn’t do anything with the money or property you inherit until the trustee has made their decision about whether to claim some or all of it.
If you do use some of the inheritance without permission, the duration of your trust deed may be extended or your payments increased to compensate.
Inheritance once a trust deed has been discharged
Is there any way a trustee could reopen my case and take my inheritance?
Not if you inherit once the trust deed has been discharged. If, on the other hand, you fail to let a trustee know about an inheritance that occurred during the life of the trust deed (even if you only receive the money/property once you are discharged) the trustee may be able reopen your case to recover money which would have been owed at the time.
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