Trusts in Wills: A Strategy for Safeguarding Your Assets
Have you ever considered what a trust is and how it can be used to efficiently pass on your assets to loved ones? One effective method is by incorporating a trust into your Will. Trusts provide flexibility, control, and protection over your estate, making them a valuable part of a well-rounded estate plan.
What Are Trusts in Wills?
A trust within a Will, commonly known as a testamentary trust, is a legal arrangement that becomes active upon your death. It allows trustees to manage and allocate your assets based on the terms you set out. This arrangement can offer significant benefits, ensuring that your estate is handled as per your wishes. Trustees oversee the funds intended for your chosen beneficiaries and can distribute them over time. If you decide to include a trust in your Will, it’s often recommended to draft a Letter of Wishes. This document helps guide the trustees on when and for what purposes the funds should be distributed, such as education, property purchases, or vacations.
Different Types of Trusts in Wills
Discretionary Trusts
Discretionary trusts give trustees the flexibility to determine how and when to allocate assets to the beneficiaries. This option is particularly beneficial if the beneficiaries are minors or may struggle with financial management. For example, it could be useful for a beneficiary who might otherwise spend the funds irresponsibly. Additionally, this type of trust can help beneficiaries who receive means-tested benefits, as receiving a large inheritance at once could potentially affect their eligibility for such benefits.
Life Interest Trusts
Life interest trusts allow a named beneficiary to receive income generated by the trust's assets, such as from property or investments, for their lifetime. Once they pass away, the assets are distributed to the remaining beneficiaries listed in the Will. This arrangement is useful in cases where couples with children from previous relationships want to ensure that their spouse has financial support during their lifetime, while also safeguarding assets for their own children.
Right of Occupation Trusts
Right of occupation trusts give a beneficiary the right to live in a specific property for a set period or until a particular event occurs (e.g., remarriage), or for the rest of their life. This type of trust is frequently used to ensure that a loved one, such as a spouse or dependent, has secure housing after the testator’s passing. It’s especially helpful in blended families, providing for a spouse while preserving the property for children from an earlier relationship. The terms of the trust can also specify responsibilities for property maintenance, insurance, and other related costs.
Disabled Persons Trusts
Also referred to as Vulnerable Persons Trusts, these trusts are tailored to support individuals with disabilities. They allow the trust to provide financial assistance without affecting the beneficiary’s access to means-tested benefits, such as Employment and Support Allowance. This structure ensures that the beneficiary can continue using their benefits for daily expenses while using the trust’s funds for additional needs like education, holidays, or a home deposit.
Bare Trusts
Bare trusts are automatically established in a Will for minors. Once the beneficiary turns 18, they gain full access to both the trust’s capital and any income generated. Until then, the trustees manage the assets on behalf of the beneficiary, with the option to release funds before the age of 18 for things like education or a first car. A Letter of Wishes can help guide the trustees on when to make such advancements.
Important Considerations for Trusts
Trust Registration
Following the testator's death, trustees are responsible for registering the trust with HMRC if required. Once registered, the trustees must keep the information up to date and file tax returns for the trust, if necessary. Taxes like inheritance or capital gains tax may be payable on the trust, particularly at each 10-year anniversary. While we cannot provide comprehensive tax advice, we can collaborate with accountants to ensure full compliance.
Tax Implications
Trustees are responsible for handling any taxes associated with the trust, which may include income tax, capital gains tax, or inheritance tax. Setting up and managing a trust can be complex, and might not be cost-effective for beneficiaries who are only entitled to a small portion of your estate. Our team is available to discuss whether a trust is appropriate for your specific situation.
Begin Planning Trusts in Your Will
Incorporating trusts into your Will ensures that your estate is managed and distributed in line with your intentions, taking into consideration the needs of your beneficiaries. At RJM Solicitors, our team is ready to assist you with the intricacies of trust planning.
For further information or to arrange a consultation, please contact us at 01685 373721 to speak with one of our experts.