Wills, Trusts and Estates FAQs

A Will Trust is a trust which you arrange during your lifetime in your Will but it only comes into effect on your death. It means that your chosen trustees look after and manage the trust assets for the benefit of your chosen beneficiaries. The Trust assets are owned by the Trust. This differs from a standard will where the beneficiaries directly receive any assets given to them.

The Trustees are responsible for managing the trust assets during the lifetime of the trust. They are also responsible for distributing trust assets to the beneficiaries. With a Discretionary Will Trust the Trustees have discretion as to when beneficiaries can receive under a trust and how much/what they receive. This is beneficial as the Trustees can determine who should receive what based on the circumstances at the time. For example, a beneficiary may not want to receive money from the trust at a particular time and the Trustees can use their discretion not to pay any income or capital to that beneficiary until it is appropriate to do so.

A Will Trust can be discussed and then included in your Will as part of the Will making process. When your legal adviser is providing advice as to the best type of Will for your circumstances, this is when a Will Trust would be recommended and then incorporated into your Will.

A Trust created in your Will can be amended or revoked in your lifetime, as part of the process of updating your Will. The Trust will only come into effect when you pass away. If you decide to make a new Will, your previous Will with the Trust included would be revoked.

The Will Trust will come into effect when the Testator has died. It is possible for a Will Trust to be amended or revoked depending on the terms of the Trust. We would strongly recommend taking legal advice to review the Trust contents and see if this is possible, and the implications that it may have if the Trust was amended and revoked.

A trust is where assets are held and managed by Trustees for the benefit of someone else. A trust can be beneficial in terms of inheritance for children as it means that the children are not given all their inheritance at once and therefore reduces the risk of it being wasted.

A trust can be set up by parents for their children’s financial future in order to ensure that their children have access to money for their future maintenance and education but the assets in the trust are looked after by the Trustees to ensure that they are preserved and used wisely by the children

Bare trusts can be used to hold assets for children to ensure the funds are not used until they are adults and able to make financially sensible decisions themselves. Funds held in the bare trust can be accessed for the children’s benefit before they turn 18, for example to pay for school fees. Transfers into a bare trust also have the benefit that they may also be exempt from Inheritance Tax, as long as the person making paying the funds into the trust survives for 7 years after making the transfer.

Ordinarily, people tend to choose close family or friends whom they trust the most and consider competent, fair, responsible and honest although it is sensible to consider appointing at least one trustee who is a generation down from you and whether by appointing one family member it would cause animosity within the family

Whilst it can be helpful to appoint a personal friend or a close family member to act as a Trustee for a number of reasons, there is the possibility that they may not be even handed whereas an independent trustee, such as Tollers, would make decisions impartially as they would not have a financial or personal interest in the trust or its assets.

They should consider, access to funds, adding funds/assets to the trust. If they are to benefit one child/person or a number of children/beneficiaries on discretionary basis And what the funds are to be used for i.e. education

This will depend on the trust, some trust will allow the children to receive their entitlement at ages 18, 21 or 25.

A trust can reduce inheritance tax liability as assets are transferred out of your estate into a trust, potentially reducing your estate value. This is subject to the person creating the trust not being a beneficiary of the trust. After 7 years have passed for the gift to the trust, this value transferred will fall outside of the estate for inheritance tax purposes. Please note there are other implications involved in setting up trusts so we would recommend seeking legal advice to check the individual scenario.

We would recommend obtaining legal advice to discuss drawing up a trust for children. When setting up a trust, a discussion regarding the amount to be added into the trust, the reason for creating a trust and the details of the children who are to benefit would take place. The implications of the trust, including potential tax liabilities would also be reviewed along with all asset values.

Most everyday issues can be resolved by simple mediation but more serious disputes may require court involvement. This can not only be expensive but distressing and time-consuming, and so it is important to take advice as soon as possible at the hint of any dispute.

There are several different types of Will Trust including Bare Trusts, Life Interest Trusts, Discretionary Trusts and Vulnerable Person’s Trusts. Bare Trusts are for children who have not yet reached 18 years of age (or older if specified in your Will). Life Interest Trusts are where you leave assets in trust for a person to benefit from assets for a defined period. A discretionary trust is when assets are left in trust for the trustees to decide which people specified benefit from those assets and when. Finally, a Vulnerable Person’s Trust is for people who suffer from certain conditions.

If you leave your estate on discretionary trust, whilst it is normally the case that you would write a Letter of Wishes stating how you wish your Estate to be distributed on your death, you would usually give your Trustees wide enough powers to change how they distribute the assets if, for example, tax laws have changed between writing your Will and your death. It is therefore extremely important that you make the right choice when appointing trustees and it is often a good idea to appoint a professional, independent trustee, such as an accountant or solicitor.

By leaving your estate to the care of a discretionary trust you can ensure that a number of chosen trustees continue to manage your assets after you die. Assets can be distributed to beneficiaries at their discretion-provided they are listed as a beneficiary of the trust. Specific beneficiaries can be named, or classes of people can be nominated such as grandchildren, meaning that assets can be allocated to those not yet born. As the Trustees ultimately decide how your assets are distributed, they will need to understand your reasons and wishes for the trust. Discretionary Trusts can be used in many situations for tax planning, protecting assets for vulnerable beneficiaries and to give vulnerability.

Whether or not there are tax implications associated with Will trusts will depend on the type of trust created and also the beneficiaries of the trust. Trusts which are created for the benefit of a spouse will attract spousal exemption and therefore will be exempt from inheritance tax on the first death. However when the spouse passes away the value of the assets which are held in trust for their benefit will form part of their estate for inheritance tax purposes.

If a Will creates a discretionary trust and the value of the trust is over the nil rate band (NRB) inheritance tax is payable immediately on anything over and above the NRB. However the trustees can take advantage of some tax planning within the two-year period following the death to potentially reduce down or eliminate the immediate tax liability. Discretionary trusts are subject to two additional types of IHT charges when an asset leaves the trust and on each 10 year anniversary during the lifetime of the trust.

On occasion it may be beneficial to modify or update the terms of a trust. This may be to achieve administrative efficiency such as providing a trustee with a specific power which they need to undertake a transaction, or to change the interests of the beneficiaries such as giving them access to the capital early or creating a new trust over the assets. In order the modify a trust the trustees must have the relevant authority otherwise they risk breaching their duties. Trustees can obtain this authority from the trust deed itself, statute, the beneficiaries of the trust or the Court.

If a trust deed is drafted well it may never need to rely on any other source of authority in order to be modified or updated.

Whilst a person has mental capacity to give their instructions they can do a new Will at any time appointing different trustees for the Will Trust. When a person dies the Will Trust provisions are implemented. A Will Trust is drafted to allow a change in trustees. This may be necessary if a trustee dies, or circumstances change and a trustee becomes unable to act. This is important as two trustees are always required for a trust.