Wanting to pass on as much of our wealth and assets as possible to our loved ones is only natural. It’s why estate and inheritance tax planning is so popular these days.
But there’s one important aspect of wills that can easily get overlooked: will trusts. So, in this blog, we explain everything you need to know about will trusts, how they work, and why you could benefit from them.
What is a will trust?
A will trust is a legal arrangement created within someone’s will. A trust allows you to place your money, property, and investments into the hands of at least one trustee, who will manage the trust assets on your behalf after you pass away.
As a general rule, anyone over a certain age (usually 18) can be a trustee – this could be a trusted family member, friend, or an expert wills and trusts solicitor. The legal owners of the trust assets are the trustees, who must act in the best interests of the chosen beneficiaries.
It is highly recommended to appoint professional trustees or seek expert advice because the trustees have a legal obligation to administer the trust properly and comply with the Trustees Act. This ensures the trust fund is managed according to the terms set out in the will and relevant laws.
Why use a will trust?
A will trust is a valuable tool for passing on family assets while maintaining control over how they are handled after your death. It can provide tax advantages, protect vulnerable beneficiaries, and help manage complex estates.
For example, a life interest trust allows a surviving spouse or life tenant to benefit from the income generated by the trust assets during their lifetime, such as living in the family home or receiving income payments. When the life tenant dies, the capital value of the trust assets passes to the remaindermen, often children from a previous relationship.
Discretionary trusts give trustees discretion over how and when to distribute income or capital payments to the beneficiaries. This is especially useful for vulnerable persons or minor children who may benefit from receiving their inheritance gradually rather than as a lump sum, or for those receiving means-tested benefits.
Bare trusts are simpler and give the beneficiary full ownership of the trust assets once they reach a specified age, commonly 18 or 16 depending on the jurisdiction.
Local authorities may assess trust assets when considering care costs, but properly structured testamentary trusts can help protect assets from being counted in such assessments.
How to set up a will trust
Setting up a will trust requires careful planning and expert advice. The trust must meet three certainties: the settlor’s intention to create the trust, the trust assets to be held, and the chosen beneficiaries who will benefit.
You should consider which assets you want to place in the trust fund, who will act as trustees (ensuring there is at least one trustee willing to take on the responsibility), and the aims of the trust. A letter of wishes can also be prepared to guide trustees on how you would like the trust to be administered, though it is not legally binding.
Because will trusts can involve complex legal and tax matters, consulting with expert wills and trusts solicitors is essential to ensure the trust is structured correctly and to maximise any tax advantages, including potential relief from inheritance tax, income tax, and capital gains tax.
By setting up the right type of will trust, you can protect your family home, provide for vulnerable beneficiaries, and ensure your family assets are preserved for multiple generations.
Get in touch to talk about what you want from a will trust.