Trusts in Wills

Trusts in Wills; A way to preserve your assets

You may have often wondered what is a trust and how can you use one to pass assets on to friends and family members effectively. One of the ways you can do this, is to include a trust within your Will. Trusts offer flexibility, control, and protection for your assets, making them an invaluable component of comprehensive estate planning.

Understanding Trusts in Wills

A trust in a will, often referred to as a testamentary trust, is a legal arrangement that takes effect upon your death. It allows you to appoint trustees to manage and distribute your assets according to the terms you specify. This structure can provide significant advantages for you and your beneficiaries, ensuring that your assets are handled in the best possible way. Your trustees will look after the funds for your chosen beneficiaries and will deal with distributing funds to them over the period of the trust. If you choose to include a trust within your Will, we would strongly suggest that we assist you to draft a Letter of Wishes which is a document that will guide your trustees as to when they should consider distributing funds to the beneficiary i.e. for education, to purchase a property, for a holiday and so on.

An example of the people you may choose to act as your trustees are your children, your siblings or grandchildren and so on.

Types of Trusts in Wills

Discretionary Trusts

• These trusts give trustees the power to decide how and when to distribute the assets to the beneficiaries. This flexibility can be particularly useful if the beneficiaries are young or have difficulties managing their own finances. For example, if the beneficiary has difficult spending the funds on the right things.
• It is necessary for a discretionary trust to have more than one beneficiary.
• Discretionary trusts may also be helpful for beneficiaries who are in receipt of means tested benefits as if they were to inherit a large amount from your estate in one go, they may lose their entitlement to means tested benefits.

Life Interest Trusts

• This type of trust provides a beneficiary with the right to receive income from the trust assets (such as property or investments) for their lifetime. After their death, the assets are distributed to other beneficiaries named in the will. This can be useful if you and your partner have children from previous relationships and you each wish to provide for your own respective children in your Will but also wish to ensure that your spouse has enough funds to pay for everyday living costs, holidays etc during their lifetime.

Right of Occupation Trusts

• Right of occupation trusts, grant a beneficiary the right to live in a specified property for a predetermined period. These trusts are typically used to ensure that a loved one, such as a spouse, partner, or dependent, has a secure place to live after the testator’s death. The right can be granted for a fixed term, until a specific event occurs (such as remarriage), or for the beneficiary’s lifetime.
• A key advantage of this trust is their flexibility in estate planning. They allow the testator to provide for a beneficiary’s housing needs while simultaneously preserving the property for future beneficiaries. This arrangement is particularly useful in blended families, where the testator wishes to provide for a current spouse while ultimately passing the property to children from a previous relationship. The terms of the trust can specify responsibilities such as maintenance, insurance, and other property-related expenses, ensuring clarity and preventing potential disputes.

Disabled Persons Trusts

• Disabled Persons Trusts (also known as Trusts for Vulnerable Persons) are trusts designed to benefit individuals with disabilities. The trust will provide financial support for the beneficiary without affecting their entitlement for means-tested benefits, such as Employment and Support Allowance. This means that the beneficiary can still use their means-tested benefits to pay for their usual everyday costs and use the funds that they receive from your estate to pay for holidays, days out, education, a deposit on a home etc.

Bare Trusts

• Bare trusts are automatically set up in a Will for minor beneficiaries. Once the beneficiary reaches the age of 18, they have the right to all of the capital (assets within the trust) and income (the interest generated from the capital within the Trust). Your trustees will look after the funds for the beneficiary until they ascertain the age of 18. Your trustees have the discretion to advance funds to the beneficiary before they reach the age of 18. Your trustees may choose to advance funds to your beneficiary for education, driving lessons, a new car, holidays etc. Again, you may wish to leave a Letter of Wishes to provide guidance to your trustees as to when they should consider advancing sums to the beneficiary.

Important information about Trusts

Trusts within Wills need to be registered by your Trustees on your death

• It is now a requirement a large number of trusts now need to be registered with HMRC. Once registered, the trustees are responsible for keeping the register up to date and if the trust is taxable, they will be required to submit a tax return each year. There may also be taxes payable on each 10 year Anniversary of the trust such as inheritance tax or capital gains tax. We cannot provide comprehensive advice about what tax may be due but we can work in conjunction with an accountant to provide you with a full service.

Taxes may be payable on the Trust

• Your trustees will be responsible for ensuring that any Tax payable on the trust is paid. It may be that income tax, capital gains tax, or inheritance tax may be payable on the trust.

Setting up a trust and acting as a trustee can be complex and so it may not be advantageous for a beneficiary who is only entitled to a small portion of your estate. Our Team would be happy to discuss whether setting up a trust would be beneficial for your personal circumstances.

Lifetime Trusts

Although we do not provide advice regarding setting up lifetime trusts, if you would like some advice on a trust that has already been set up, we are happy to go through the trust documentation with you and what your duties are as a trustee. Our Solicitors will provide you with full comprehensive advice surrounding the trust to ensure that you are correctly fulfilling your duties as a trustee.

Get Started with Trusts in Your Will Today

Incorporating trusts into your will is a powerful way to ensure your assets are managed and distributed according to your wishes, whilst also taking into account your beneficiary’s circumstances. At David Gray Solicitors, we are here to help you navigate the complexities of trust planning.

For more information, or to schedule an appointment with us, please call 0191 232 9547 to speak with a member of our team.