What is a Trust?
A trust is a legal arrangement in which one or more persons, known as the trustee(s), holds and manages assets on behalf of another person, called the beneficiary. Trusts can be established during your lifetime, known as living trusts, or created upon your death through your will, referred to as testamentary trusts. The choice of trust type depends on your specific needs and objectives.
Types of Trusts in Wills
There are several types of trusts that can be included in a will, each with its own benefits and considerations. Some of the most common types include:
Discretionary Trusts
Discretionary trusts exist when there is more than one beneficiary, and they provide trustees with the flexibility to decide how and when to distribute the trust assets to the beneficiaries. This can be particularly beneficial if you want to cater to a variety of potential beneficiaries or allow trustees to adapt to changing circumstances. For example, if a beneficiary faces financial difficulties or has special needs, the trustees can adjust the distribution to offer the necessary support.
Life Interest Trusts
A life interest trust, also called an interest in possession trust, allows a designated beneficiary (the life tenant) to receive income from the trust assets or use the trust property during their lifetime. When the life tenant passes away, the trust assets are transferred to the ultimate beneficiaries, known as the remaindermen. This type of trust is typically used to ensure that a surviving spouse is provided for during their life, while preserving the capital for children or other beneficiaries.
Bare Trusts
Bare trusts, also known as simple trusts, hold assets on behalf of a specific beneficiary. The beneficiary has an absolute right to the trust assets and can demand that they be transferred to them at any time. Bare trusts are often used for minor beneficiaries, with the assets being transferred to them when they reach adulthood. This type of trust is straightforward and provides the beneficiary with full control over the assets once they come of age.
Setting Up a Trust in Your Will
Setting up a trust in your will involves several steps, and it is advisable to seek professional legal advice to ensure that the trust is structured correctly. Here are the key steps involved:
1. Consultation with a Solicitor: Start by consulting an estate planning solicitor. At My Probate Solicitors, we can explain the legal implications and benefits of creating a trust in your will. The solicitor will assess your situation, discuss your goals, and advise on the best trust for you.
2. Drafting the Will: The will must outline the terms of the trust, including the appointment of trustees, the identification of beneficiaries, and the specific terms and conditions of the trust. This includes specifying how the trust assets should be managed and distributed, any conditions or restrictions on the beneficiaries, and the duration of the trust. The solicitor will ensure that the will is legally sound and accurately reflects the individual’s intentions.
3. Choosing Trustees: Trustees manage trust assets and ensure the trust’s terms are met. Select trustworthy individuals capable of handling financial matters and acting in the beneficiaries’ best interests. Trustees can be family, friends, or professionals like solicitors or trust companies.
4. Funding the Trust: Specify which assets are to be placed into the trust, such as property, investments, or other valuable assets. The funding process involves transferring ownership of these assets to the trust, requiring legal documentation and coordination with financial institutions. The solicitor will assist in ensuring that the assets are allocated correctly and that the trust is sufficiently funded to meet its purpose.
Benefits of Having a Trust in Your Will
Control Over Asset Distribution
A trust in your will allows you to control asset distribution after your death. Unlike a simple will, a trust can set conditions and timelines for distribution, which is helpful for young children or beneficiaries who may not manage large sums responsibly. For instance, you can set a trust to release funds to your children at different ages or milestones.
Protection for Minor Beneficiaries
A trust can protect a minor’s inheritance by appointing a trustee to manage it until they reach adulthood. This ensures their needs, like education and healthcare, are met while preventing mismanagement and avoiding court-appointed guardians making financial decisions.
Tax Benefits
Trusts can provide substantial tax advantages, such as reducing estate, gift, and income taxes for beneficiaries. An experienced estate planner can help create a trust that optimises these benefits, ensuring more assets go to your loved ones instead of the government.
Asset Protection
Trusts can safeguard your assets from creditors and legal claims. Placing assets in a trust protects them from lawsuits, divorce settlements, or other claims that can arise after your death. This is especially crucial for those with substantial wealth or business interests. An irrevocable trust offers strong protection by limiting creditor access to your assets.
Support for Special Needs Beneficiaries
If you have a beneficiary with special needs, a trust can provide continuous support without affecting their eligibility for government assistance programs. A special needs trust can be structured to supplement, rather than replace, government benefits, ensuring the beneficiary’s quality of life while preserving their access to essential services.
Flexibility and Customization
Trusts are flexible, allowing customisation to fit your needs. You can add provisions for scenarios like remarriage, disability, or family changes, ensuring your estate plan stays relevant and effective long-term.
Professional Management
Appointing a professional trustee, such as a bank or trust company, can help manage assets effectively. Professional trustees are knowledgeable in investment, tax, and legal matters, ensuring the trust is administered efficiently and according to the specified instructions. This approach can be advantageous for complex estates or when beneficiaries may lack the expertise to manage inherited assets.
Last Words
Including a trust in your will has several advantages, such as controlling asset distribution, protecting minor beneficiaries and achieving tax benefits. Trusts offer flexibility, customisation, and professional management, ensuring your estate is handled according to your specifications. By evaluating the benefits of trusts, you can develop a thorough estate plan that provides security for your beneficiaries.
Creating a trust requires careful planning and expertise. It is recommended to consult with an experienced estate planner or attorney to ensure your trust is structured appropriately and tailored to your specific needs. Professional guidance can help you use trusts effectively for the benefit of your beneficiaries.
If you are considering setting up a trust in your will, we encourage you to contact us for a consultation. Our team of solicitors can assist you with the process and ensure that your estate plan is structured according to your needs. We will guide you through the process and ensure all checks are conducted effectively. With professional assistance, the process can be more manageable.