The importance of trusts in wills

We understand that it can feel overwhelming putting your affairs in order. There are many factors to consider when making a will, so it can be tempting to disregard using trusts due to the common assumption that they are complex. However, they are a valuable way of managing your assets that should not be ignored.

What is a will trust?

A will trust is a legal arrangement which protects your assets and ensures your estate is managed and distributed in accordance with your wishes. Will trusts come into effect after your death, whereas lifetime trusts allow you to protect your assets while you’re alive.

In the case of a will trust, the settlor (the person who owns the assets) must elect a trustee who will be responsible for managing their assets after they die. The settlor chooses beneficiaries who will benefit from the capital and/or income generated by the assets.

Why use a trust?

Will trusts allow you to decide how your assets are used after your death. For example, with a life interest trust, you could have peace of mind that your surviving partner will be able to stay living in your home whilst ensuring that the capital value will ultimately go to your children.

Discretionary trusts could be used to protect assets for beneficiaries who may not be able to manage their own money (eg. a child or someone who is incapacitated) as the trustee can decide what gets paid out and when. This type of trust can also be beneficial for settlors who are not certain on how they want their estate to be distributed. If the settlor wanted to factor in unborn grandchildren, they could write a letter of wishes to the trustee with relevant guidance.

Bare trusts are usually used to pass on assets to young people. Assets will be held in the name of the trustee until the child is old enough (18 years old in England and Wales), then they will have full access to the trust’s income and capital.

Will trusts do have some tax benefits as you may be able to minimise inheritance tax and make the most of tax allowances. You should seek legal advice to understand the details of this.

Talk to your family

When someone dies, it is easy for family members to assume that they know the contents of their loved one’s will. However, wills are nuanced legal documents that must not be ignored. If you are setting up a trust, it is therefore important that you inform the trustees and beneficiaries, so they know what to expect. Being a trustee comes with legal responsibilities and failing to fulfil the settlor’s wishes can have serious consequences.

Implications of overlooking trusts

If a trust has been ignored, it can be complicated for a family to unpick events that have occurred have since the death of the settlor. For example, assets can be paid to the wrong people. Also, it is easy for surviving spouses to assume that they have inherited the entire estate. Years later, they might try to move home and realise they are not actually entitled to the sale proceeds.

Trusts must also be registered with HMRC; trustees could face a £5,000 penalty if they do not register or fail to keep the register up to date.

Seek legal advice

It is always important to get the right advice when dealing with wills. Whether you’re setting up a trust for yourself or understanding the wishes of a loved one, Attwaters Jameson Hill’s team of experts are here to support you. Please get in touch with us on 0330 221 8855 or email enquiries@attwaters.co.uk