When a Will is not enough: a guide to Will Trusts

Posted on: 21 March 2016 by Helen Wyatt

Helen Kelly, Partner in the Private Client team at law firm SAS Daniels explains the pros and cons of Will Trusts

Pros and cons of Will Trusts

We all know the importance of setting up a Will to ensure our wishes are met after death. However, depending on your circumstances, a straightforward Will might not be the right approach, especially if you have a complex family situation or need to ensure a vulnerable family member receives ongoing care after you die. It may be that a Will Trust is more appropriate.

If you include a Trust in your Will, it will take effect when you die. In addition to helping support family members in the future, it can also potentially help mitigate inheritance tax (IHT) on your estate when you die.

Upon your death, assets (such as property, shares or money) will be transferred to your trustees (usually about two or three individuals) or to a Trust company or professional trustees who will look after the assets on behalf of the beneficiaries. You name the trustees in your Will and it will also state who the beneficiaries are and the terms of the Trust.   

Why set up a Will Trust?

Will Trusts can be used in a variety of situations such as to look after a spouse or partner after you have died, while ensuring a child’s inheritance is protected. These types of Trusts are becoming increasingly commonplace as those on their second or third marriage look to ensure that children from previous marriages are looked after. They are also useful if you need to make provision for a vulnerable family member or someone with disabilities who is unable to look after their own affairs or if you want to protect the inheritance of a beneficiary who is in an unstable marriage or who is at risk of becoming bankrupt.

There are two other key benefits of setting up a Will Trust either on death or during your lifetime and these are:

  1. To protect your assets (as much as possible) from the impact of care homes fees. A Protective Property Trust can offer you protection of the family home from the prospect of having to sell a home to pay for long-term care home costs.
  2. To minimise Inheritance Tax - placing assets that you no longer need in to a Trust decreases your own personal wealth and therefore the impact of IHT when you die. IHT is not charged if the cumulative value of the assets placed into the Trust is within the nil-rate band which is currently £325,000.

Discretionary Will Trusts

The next decision is what type of Trust to include in your Will. There are many types of Trust that can be used depending on the assets and what you are trying to achieve. A common type of Trust is a Discretionary Trust that gives the trustees the power to decide how the assets should be distributed. A grandparent may set up this type of Trust for their grandchildren and the trustees decide when and if it is appropriate to distribute the asset, for example, they might decide it is acceptable to fund a grandchild through university, but not to pay for their new sports car. The trustees also have the power to make investment decisions on behalf of the Trust.

The downsides

The downside of a Trust is that you are placing a considerable level of responsibility on the shoulders of your trustees. Not only do they often have some difficult financial decisions to make on your behalf about the future of certain individuals, but also they have to commit to certain duties including keeping accounts and instructing financial advisors and actively managing the Trust.

Also, Trusts are subject to their own tax regime to so it’s important to understand the tax implications of the type of Will Trust you decide upon.

Whatever your reason for setting up a Trust in your Will, it can help support your wishes for the future after your death and give you the reassurance that you can control what happens to your assets when you die and that those that need your future ongoing support will be taken care of.

About the author

Helen Kelly is a Partner and Head of the Trusts team at law firm SAS Daniels. She has many years’ experience of setting up, administering, varying and terminating all different types of Trusts and she also acts as a professional trustee.

She is also STEP (Society of Trust and Estate Practitioners) qualified and current Chair of the Cheshire branch of STEP and the North West representative for the STEP England and Wales Committee.

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