Providing for your loved ones after you pass is a noble goal shared by many people. In many situations, however, the best course of action is not just to leave a simple Will. Will trusts are another way to ensure that your Will is best suited to your unique situation.
What is a will trust?
A Will trust is a system which allows people (referred to as the ‘testator’) to give named trustees control of assets on behalf of beneficiaries upon their death. A Will trust differs from other trusts in that it only becomes active upon the individual’s death.
Will trusts are created for a number of reasons including:
- Inheritance tax planning
- Protecting family assets
- Providing financially for someone too young to handle their affairs
Why make a Will trust?
There are many situations in which a Will trust can be beneficial. Some examples include:
- Providing for Children: when too young to manage their financial affairs, a Will trust ensures that children still benefit from the arrangement but have trustees to manage the administration until they are of age.
- Providing for those who are unable to manage their finances: Someone may leave money to relatives who lack the physical or mental ability to handle their finances alone, thus the need for a trustee to ensure the deceased wishes are fulfilled.
- Providing for spouses from second marriages: It is common that spouses will want to ensure that their spouse from a second marriage is financially provided for and can remain in their home, but ultimately want their children from a previous marriage to inherit.
- Giving to charities and organisations: Some people Will use a will trust to give to charities and organisations.
What is a trustee?
A Trustee has legal ownership of and responsibility for the trust’s assets. They ensure the purposes of the trust are carried out and intentions of the deceased person are fulfilled.
What is a beneficiary?
A beneficiary is an individual, group or entity which benefits from the Will trust financially.
Legal obligations and duties of trustees in the UK
Trustees have a legal obligation to:
- Act in the best interest of the beneficiaries
- Ensure the wishes of the deceased person are carried out
- Follow the instructions of the trust
- Keep detailed and up to date accounts of the assets involved in the trust
- Act impartially ensuring that each beneficiary is given equal treatment
It is also important to note that a trustee can also be a beneficiary, though it is best practice to have at least one non-beneficiary trustee overseeing the Will trust.
It is important that trustees understand the various regulations that they need to comply with so that they can ensure they are acting within the law, and are protected from potential disputes. Trustees can enlist the support of a qualified Will trust administration solicitor to advise on and help with the administrative burden of managing a trust.
How to set up a Will trust
There are several steps in setting up a Will trust. A Will trust administration solicitor will be able to guide you through this process ensuring it is accurate and will effectively carry forward your wishes for your intended beneficiaries.
You will likely consider the following points:
- Which assets would you like to include in the trust?
- Who will you select as trustees and beneficiaries?
- Your objectives for setting up a Will trust, for example, would you like to save on inheritance tax?
- The costs involved in setting up and running the trust
Your solicitor will then guide you through creating a Will trust which is suited to your wishes. There are many types of Will trust. The following are some examples that you may encounter:
- A bare trust: normally used in a situation where the beneficiary is a minor, this entitles them to both the income and the capital in the trust. The trust will be managed by trustees until the beneficiary is 18 years of age.
- Interest in possession trust: this entitles the beneficiary to the income of the trust or the use of an asset until they cease to require it, when it would then pass to another beneficiary. An example of this would be a testator wishing their spouse to resume residence in their property for as long as they wished, but ultimately their children from a different relationship will inherit the asset.
- A discretionary trust: within this arrangement, the assets and income that the beneficiaries are entitled to, and when, is entirely down to the trustees. This method can be used when the testator has a business interest that they wish to protect and the trustees can act in order to protect this.
What are the legal requirements for a Will trust?
Your solicitor will guide you through creating a document which fulfils all the legal requirements for validity. These are:
- Certainty of intention: It must be stated in the Will clearly that you intend to create a trust.
- Certainty of subject matter: It must be clear which assets are a part of the trust and the proportion of each asset which is intended for each beneficiary.
- Certainty of objects: It must be clearly stated who the intended beneficiaries are.
Tax Implications of Will trusts
The way a Will trust is taxed is complicated. It depends on the type of Will trust you have, and how it is set up.
If you are looking to make a Will trust to save on tax for your loved ones, it is vital that you speak to a qualified estates and probate solicitor who will guide you to the most tax-efficient approach.
We’ve included an overview of the types of tax a Will trust may be subject to below.
- Inheritance tax: Inheritance tax is charged at 40% of anything above the ‘threshold’ which is currently £325,000.
- Capital gains tax: Capital Gains Tax is a tax on the profit when an asset within the trust is sold.
- Income tax: This will be a percentage of the income of any investments in the trust.
Why choose Merriman Solicitors?
We have extensive experience in Will trust administration. Our solicitors can help set up your Will trust, and help trustees with their trust administration duties. We understand that creating and administering a Will trust can be both time consuming and intimidating, but we can help alleviate some of the stress with our expertise.
Whether you are looking to be tax efficient, protect wealth for children under the age of eighteen, or manage your assets for your blended family, our team is here to help.
