When it comes to creating plans for their estate, many people choose to use either a trust or a will. Both of these legal documents play crucial parts in the estate planning process for an individual. However, the use of a trust rather than a will comes with a number of important benefits that should not be overlooked. In this article, why is writing a will important, we take a look at these issues in more depth.
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What is a trust?
A trust is a legal structure in which one person transfers money, property, or interests to another person with the intention that the second person will manage the assets for the benefit of a third party. For instance, you may set away a portion of your savings in a trust for the benefit of your children.
In any trust, it is essential to have a solid understanding of the following two critical roles:
- The trustee is the individual who actually owns the assets that are held in the trust. They have the same capabilities that an individual would have to buy, sell, and invest in property on their own behalf. It is up to the trustee to govern the trust and make responsible decisions on the management of the trust property.
- Beneficiary refers to the individual for whose benefit the trust was established. The beneficiary is the one who will ultimately profit from the assets that are kept in trust.
What different kinds of trust are there?
There are many different varieties of trust.
The costs associated with establishing a basic trust could be relatively low. While others are more difficult to organise and would require more help from specialists, which would drive up the cost of the undertaking. Certain trusts are required to comply with their very own set of inheritance tax regulations. If the assets have been effectively moved into trust, then they will no longer be liable to inheritance tax after you pass away. This is because trusts are considered legal entities.
Others are subject to higher rates of income and capital gains taxation. Therefore, it is essential to have a solid understanding of the nature of the trust you have. What you want the trust to do will determine the type of trust that is appropriate for the situation. The following are some of the most often encountered trusts:
A Bare Trust is the most basic form of trust. If the beneficiary or beneficiaries are mentally competent and have reached the age of 18 in England, Wales, and Northern Ireland, then they are eligible to receive all of the assets held in the trust. In Scotland, the beneficiary or beneficiaries must be 16 years old.
The beneficiary of an interest in possession trust is eligible for immediate income distributions from the trust but does not have a legal claim to the cash, property, or investments that are responsible for producing those distributions. The recipient is going to be responsible for paying income tax on the money that they receive. You and your partner could agree before you establish this form of trust for your partner’s benefit that upon their passing, the assets held in the trust will be distributed among your children. It is common practise to include a trust structure like this one in the last will and testament of a person who has remarried after going through a divorce but still has children from their first marriage.
A discretionary trust is one in which the trustees have full authority to determine the manner in which the trust’s assets are dispersed among the beneficiaries who are listed in the trust. You are able to establish this form of trust for your grandchildren and delegate authority to the trustees, who may be the offspring of your grandchildren. The trustees will be responsible for determining how the income and assets will be distributed among the grandkids. On behalf of the trust, the trustees will have the authority to decide what kinds of investments should be made.
Trusts known as accumulation trusts allow for the accumulation of revenue within the trust, which can then be added to the trust’s capital. As is the case with discretionary trusts, they might also have the ability to distribute revenue.
A mixed trust is one that incorporates characteristics of multiple types of trusts. For instance, a beneficiary might have an interest in ownership of fifty percent of the trust fund, which could include a claim to the revenue it generates. The other half of the trust fund could be placed in a discretionary trust if the trustee so chooses.
What exactly is a will?
After your death, your assets and property will be distributed in accordance with the terms of your will, which is a legal document. When you prepare a will, you will often choose one or more executors who will be responsible for the distribution of your assets, the sale of any properties, and the payment of any bills, debts, and Inheritance Tax that may be owed.
You are only permitted to enter real estate or other assets that are registered in your name. This means that the Will does not cover any jointly owned property or any property that is already part of a trust for the beneficiaries of the Will.
It is possible that the Executor may need to go through the probate process if the estate in question contains a property or if the value of the estate is greater than £5,000. Your chosen Executor will submit an application to the Probate Registry (also known as the Court) at this point in order to get the legal authority necessary to govern the Estate and carry out the instructions outlined in the Will.
Can you have a will and also set up a trust?
Yes, you are able to specify your wishes for your assets and Estate by drafting both a Will and a Trust if you so choose. They are able to complement one another, however in the event of a dispute, a Trust is the entity that holds the authority. Many people believe that by establishing both a will and a trust for their possessions, they would have a greater degree of influence over what happens to those things after they pass away.
Which is more advantageous?
The individual’s family and financial situation will determine whether a trust or a will is more appropriate for the individual’s estate planning needs. Wills, on the whole, are simpler, less expensive to create, and easier to put into action, despite the fact that they can be challenged in the probate court. An irrevocable trust might be the best option for wealthy people who want to minimise their potential exposure to inheritance taxes and avoid the probate process. The assets held by an individual are removed from that individual’s name and placed into an irrevocable trust. However, these trusts are more expensive to create and put into action, need the designation of a trustee, and cannot be modified once they have taken effect.
It is critical to begin the process of creating an estate plan as early in one’s life as possible. Making use of wills, trusts, or both in a thoughtful manner can help ensure that your assets and possessions are distributed in the way that you have specified. If you have children who are too young to make decisions for themselves, you need a will to name their guardians. In most cases, a trust can settle an estate more rapidly than a will can, and it can also protect the anonymity of trust assets if the costs of establishing and maintaining a trust are proportionate to the value of the assets and the objectives of the trust’s creator.
If you make creating an estate plan a priority right now, you can save money and time in the future, and you can also help your loved ones avoid potential financial difficulties and problems. And if you are an LGBTQ+ couple, having a will or trust is just as vital as it is for same-sex couples, and if you are not married, it may be even more important to ensure that your intentions are honoured and carried out, especially if you are not legally wed.
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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.
Deciding when (or whether) to incorporate, what kind of ownership
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It is important for you to be well informed about the issues and possible implications of writing a Will and setting up a trust. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Wills and Probate 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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