Will Trusts

Including a trust in your Will has become an increasingly essential part of estate planning; ensuring beneficiaries are provided for in the most appropriate way, protecting assets from external threats, avoiding unnecessary taxes and even mitigating care home fees.

What is a Will Trust?

A Will Trust, also known as a testamentary trust, is a trust created within a person’s will. The term is generic and can be used to represent many different types of trust.

Often you will see the term ‘trustees’ used in straightforward Wills that have been drafted without any specific trust planning and this can cause confusion for clients. The reason for this is because every Will creates a trust-like arrangement; namely, an individual (the testator) asking other individuals (the executors) to hold assets (the estate) for the benefit of others (the beneficiaries). This article is not intended to include arrangements which, although technically create trusts, provide for individuals by way of outright gift or contingent on a particular age.

The Will Trusts we would typically use as fundamental estate planning tools are as follows:

• Life Interest Trusts
• Discretionary Trusts
• Vulnerable/Disabled Persons Trusts; and
• Charitable Trusts

Legal requirements

In order to be a valid express trust (i.e. not one created unintentionally by the testator’s actions) it needs to satisfy three general criteria, known as “The Three Certainties”: certainty of intention, certainty of subject matter and certainty of objects.

Satisfying the criteria is not often challenging – solicitors have established wording to clearly establish the intention to create the arrangement (intention), will be able to define or adequately identify the asset(s) being subject to the trust (subject matter) and will be able to list the individuals or describe the class(es) of beneficiary (objects). Whilst these elements are not particularly tricky to satisfy, any mistakes will fundamentally affect the success of the trust. For example, an individual or class of beneficiary not included in the list of ‘objects’ will not be able to benefit from the trust.

It is important therefore to consult with your solicitor carefully to ensure everything is described correctly and that the trust applies to every asset and every person you intend it to.

Life Interest Will Trusts

Life Interest Will Trusts, also known as Qualifying Interest in Possession Trusts, are an excellent tool for protecting the capital value of assets, while providing an often exclusive use or benefit of income during the lifetime of a chosen beneficiary. These are commonly used for blended families who want to ensure assets, such as the main residence, are protected for inheriting by their blood line, whilst still allowing their surviving spouse to benefit during their lifetime. Life Interest Will Trusts are also commonly used to protect against the care home fees of a surviving spouse by keeping the capital value out of the surviving spouse’s assessable estate. Find out more about Life Interest Will Trusts here and about Life Interest Wills here.

Discretionary Will Trusts

Discretionary Will Trusts are arrangements where the trustees are left assets with the complete freedom to hold or distribute assets at their choosing, albeit always for and within the express objects. These trusts are commonly used where there is a benefit to keeping the capital value of the trust fund outside of the estate of the beneficiaries. This could be where beneficiaries are already wealthy, where beneficiaries are in receipt of means-tested benefits, where they would not be able to manage the funds for themselves effectively and where they need more protection against third party threats. They are also regularly used to ensure inheritance tax reliefs are maximised and where there is a fear that a beneficiary could end up losing the inheritance to bankruptcy or divorce in the future.

Vulnerable/Disabled Will Trusts

This type of trust is a trust that can be prepared to protect and provide for vulnerable and disabled beneficiaries. It can work in a similar way to Discretionary Trusts in terms of protecting eligibility to means-tested benefits, but it has a more restrictive scope in terms of who can benefit. Find out more about it here.

Charitable Will Trusts

For those who wish to provide for charity when they are gone but do not feel particularly comfortable simply making outright gifts, a Charitable Will Trust allows a fund to be managed into the future according to a deceased client’s wishes and objectives. This is a great of way of leaving a personalised charitable legacy.

Property and Will Trusts

Property is often one of the assets most frequently identified as needing protection. Trusts are an excellent tool for passing on property on death whilst still exercising some control over its use. A Life Interest Trust would typically give a beneficiary an exclusive right of occupation, meanwhile a Discretionary Trust would be able to balance the interests of numerous individuals at the same time.

In either case, the trust could stipulate the terms on which the partner can occupy the property and at what point the children are entitled to the property. Properly drafted, a Will Trust could easily ensure that both the testator’s wishes are met and could provide the trustees with all necessary powers they may require to ensure that they can enforce the terms of the trust.

Quite often, the decision as to which trust is right for you will be determined by the tax treatment afforded to the various options. It is important your solicitor discusses these with you before you decide upon which trust is right for you.

Importance of good trustees

Choosing the right trustees is fundamental to the success of any trust, as these trusts will all typically give the trustees an element of autonomy over various aspects. Trustees need to be over 18 and often at least two in number. They can be family or friends and they can also be professionals and Trust Corporations. The latter are often extremely beneficial in matters where there is complexity or potential conflict.

It is important to bear in mind that there are many other uses for Will Trusts and indeed many different types of Will Trust. Take a look at our FAQs section for more details.

To find out more, please contact our Wealth Protection Team on 03333 058375, or email WealthProtection@psg-law.co.uk.

Read our Wealth Protection FAQs