Setting up a trust in a will
There are many reasons for considering creating a trust as part of your will. Taking into account the implications, good, highly experienced legal advice is recommended as part of the assessment of the advantages and possible disadvantages of creating a will trust. Considerations are likely to include legal issues, family harmony and potentially tax.
We are highly experienced in advising on trusts as part of wills. Please do get in contact to discuss your needs, our experience and approach and how we can help.
Types of will trust
The type of Will Trusts that you may need to consider adding to your Will are broadly categorised as follows:
• Bereaved Minors Trust
• 18-25 Trust
• Life Interest Trust
• Discretionary Trust
• Hybrid Trust
• Disabled persons Trust
Bereaved Minors Trust
A trust for the benefit of a person aged under 18, at least one of whose parents (or stepparents) has died, and who will become absolutely entitled to the whole of the trust property on or before his 18th birthday. The bereaved minor must become absolutely entitled to the trust property on or before their 18th birthday.
If the Will delays the age that a child of the deceased parent (or step-parent) can inherit, to age 25, or earlier, this can create an ‘18 to 25’ Trust. An 18 – 25 Trust can only be created by parents for their own children or stepchildren.
Life Interest Trust
If you leave assets in your Will to someone (e.g., your Spouse/Partner) on a ‘life interest trust’, then you will give the legal ownership of the assets in your estate to Trustees who will hold them for the benefit of your Spouse/Partner during their lifetime.
Your Spouse/Partner will be able to live in any property you leave and receive income/interest from your savings and investments. They will not automatically own any of that property, savings, or investments themselves.This means that its capital value will not be considered if they go into care and must pay e.g., nursing home fees; or if they remarry, or cohabit with another person, or divorce, or become bankrupt, or are the subject of insolvency proceedings. The income the spouse receives from the trust will however be considered for these purposes, but the capital is protected.
When the survivor dies, the assets in the trust pass to the persons nominated to receive them in your will – very often the children or grandchildren.
Assets in a discretionary trust are held by Trustees for the benefit of the beneficiaries, not by the beneficiaries themselves. The beneficiaries do not have legal title to the assets in trust and the Trustees have absolute discretion whether to make provision for the beneficiaries.
The trust structure protects the assets of the trust from any claims against the beneficiaries. It can also protect the assets from misuse by an irresponsible beneficiary as the income and capital of the trust is under the control of the Trustees, who are not required to pay it to any beneficiary in any proportion.
This is seen as protection against:
• Marriage breakdown
• Alcohol/drug abuse
• Bad decision making by a beneficiary.
These types of Trusts have become increasingly popular as they are a combination of both a Life Interest Trust and a Discretionary Trust. In addition to the ordinary life interest trust, the Trustees have ‘overriding powers’. As the name suggests, the use of these powers can override the normal provisions of a life interest trust described above.
In essence, the executors can use their overriding discretionary powers to:
• Create new trusts for all or any of the beneficiaries (e.g. the spouse/partner and children).
• Transfer funds to a new settlement for the beneficiaries.
• Pay capital/transfer assets to the beneficiaries and in effect cancel or substantially change the life interest granted to the spouse/partner.
Disabled person Trust
The main criteria are that the beneficiary is incapable of managing their affairs because of a mental disorder recognised by the Mental Health Act 1983 and is in receipt of (or is entitled to receive) certain state benefits. The Trust must benefit only or mainly the Disabled person during their lifetime.
Letters of wishes
A letter of wishes is an informal letter which may accompany a Trust in a Will, which we will prepare for you. However, it is not a legally binding document. The letter, written by the testator and addressed to the executors and/or trustees, provides the testator with the opportunity to share information and guidance about issues that may be important to them, for example an explanation of their investment strategy or suggestions as to how the testator would like their children to receive income or assets from the Trust set up in your Will.
All of these Will Trusts will have differing tax considerations, which will need to be explored before you implement any of them in your Will.