Creating a Will is an essential step in managing your estate and ensuring your wishes are honoured after you pass away. However, simply having a Will might not fully address your needs, especially if you want to protect your assets, provide for vulnerable beneficiaries, or manage inheritance tax. This is where trusts within Wills can be particularly beneficial. At Blackstone Solicitors, we guide our clients through the intricacies of setting up trusts in Wills to ensure their estate is managed in line with their wishes.
This comprehensive guide will help you understand what trusts in Wills are, why you might consider including one in your Will, and how the process works in England and Wales.
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What Is a Trust in a Will?
A trust is a legal arrangement that allows you to transfer assets to a group of people or an organisation (the trustees) to manage on behalf of your chosen beneficiaries. When a trust is included in a Will, it only comes into effect after you pass away, allowing your assets to be managed according to your specific instructions. Trusts can be particularly useful in complex family situations, when protecting assets for future generations, or when seeking to reduce inheritance tax.
Why Include a Trust in Your Will?
There are several reasons you might consider including a trust in your Will:
- Protecting Vulnerable Beneficiaries: Trusts can safeguard assets for beneficiaries who may be vulnerable, such as minor children, individuals with disabilities, or those who are not financially responsible. Trusts ensure that funds are managed appropriately, reducing the risk of mismanagement.
- Providing for a Spouse While Protecting Children’s Inheritance: Trusts can provide for your spouse or partner during their lifetime while preserving assets for your children. This is particularly useful in blended families, where you may want to ensure your spouse is looked after without unintentionally disinheriting your children from a previous relationship.
- Managing Inheritance Tax: Trusts can be structured to reduce the inheritance tax liability on your estate. While not a complete shield from tax, they can minimise your estate’s exposure and help manage the timing of tax payments.
- Controlling the Distribution of Assets: Trusts allow you to control when and how beneficiaries receive their inheritance. For example, you can specify that funds be released upon reaching a certain age or milestone, such as completing education.
- Protecting Assets from Divorce or Bankruptcy: Trusts can shield assets from being lost through divorce settlements or creditors if a beneficiary faces financial difficulties.
Types of Trusts in Wills
There are several types of trusts that you can include in your Will, each designed to meet different needs. Here are some of the most common:
- Bare Trusts: The simplest form of trust, where beneficiaries are absolutely entitled to the assets. Beneficiaries can demand the assets once they reach the age of 18. This type of trust is often used for minor children.
- Discretionary Trusts: This trust gives trustees the flexibility to decide how and when to distribute assets among beneficiaries. It’s useful when you want to leave room for changing circumstances or need to provide for beneficiaries with varying needs.
- Life Interest Trusts: Often used to provide for a spouse or partner during their lifetime, this trust grants a beneficiary the right to receive income from the assets without owning them outright. Upon the beneficiary’s death, the assets pass to other beneficiaries, usually the children.
- Flexible Life Interest Trusts: This is a hybrid of the discretionary and life interest trusts. It allows for the main beneficiary (often a spouse) to receive income while also giving trustees the power to distribute capital to other beneficiaries if needed.
- Nil Rate Band Trusts: These trusts were historically used to make the most of inheritance tax allowances. While not as common now due to the transferable nil rate band between spouses, they can still be useful in specific tax planning scenarios.
How to Set Up a Trust in Your Will
Setting up a trust in your Will involves several steps, and it’s crucial to seek legal advice to ensure it’s done correctly. Here’s a general outline of the process:
- Consult with a Solicitor: Speak with a solicitor who specialises in Wills and trusts. At Blackstone Solicitors, we will help you assess your needs, explain the different types of trusts, and guide you in choosing the right one for your circumstances.
- Decide on the Trust Structure: Determine which type of trust best meets your objectives. Consider who your beneficiaries will be, the role of your trustees, and the level of control you want over the distribution of assets.
- Choose Trustees: Trustees are responsible for managing the trust’s assets according to your instructions. It’s important to choose trustworthy and capable individuals, as they will have a significant influence on the financial future of your beneficiaries. You can appoint friends, family, or professional trustees.
- Draft Your Will: Your solicitor will draft your Will to include the trust, detailing your instructions for how the trust should operate, who the beneficiaries are, and any specific terms you want to include.
- Sign Your Will: Once the Will has been drafted and reviewed, you’ll need to sign it in the presence of witnesses to make it legally binding.
- Regularly Review Your Will: Life circumstances change, and it’s important to review your Will periodically to ensure the trust arrangements continue to reflect your wishes and needs.
The Role of Trustees
Trustees play a pivotal role in the administration of the trust. Their responsibilities include managing the trust assets, making investment decisions, and distributing funds to beneficiaries in line with the terms of the trust. Trustees are legally bound to act in the best interests of the beneficiaries, and they must adhere to the trust’s guidelines. Choosing reliable and competent trustees is crucial, as their decisions will directly impact your beneficiaries.
Tax Implications of Trusts in Wills
Trusts can have complex tax implications, including inheritance tax, income tax, and capital gains tax considerations. The specific tax treatment will depend on the type of trust and the value of the assets within it. While trusts can offer tax planning advantages, it’s essential to understand that they do not eliminate tax liabilities altogether.
How we can help
We have a proven track-record of advising upon all aspects of private client work. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.to incorporate, what kind of ownership
How to Contact Our Private Client Solicitors
It is important for you to be well informed about the issues and possible implications of setting up a Trust in Will. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Trust solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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