Will Trusts
What is a Will Trust?
A will trust is a type of will which includes additional provisions confirming the type of trust which must be set after the testator (the person making the will) has died. Trusts are used for many reasons but mostly to safeguard assets, allowing beneficiaries to live in property without inheriting it, protecting young or vulnerable beneficiaries or to maximise tax relief.
The main advantage is flexibility. If a client sets up a trust during their lifetime (a lifetime trust), rather than include the terms of the trust in their will, they could relinquish control of the assets.
Once the testator passes away, their executor must set the trust up when administering the estate, and in most cases the executor will also be the trustee (the person in charge of managing the trust).
What types of Will Trusts are available?
Life Interest Trust (Mirror Will only) | This type of trust usually relates to the family home and is only available for jointly owned property. It potentially offers some protection against care home fees and as our most popular will trust, further details are included below. |
Discretionary Trust (Mirror or Single Will) | This type of trust includes a trust fund which will be created after you pass away, with trustees using their discretion as to who should benefit (from a list of beneficiaries you include in the will), how often they should benefit, and how much they should receive. The trust fund can include all of your estate, or be made up of certain parts of it, such as a fund of money or property. |
Vulnerable (Mirror or Single Will) | Similar to a discretionary trust above, you can include this type of trust to be set up for a beneficiary who cannot, or should not, receive their inheritance directly, but should have it managed on their behalf by a trustee. This type of trust is commonly used for disabled beneficiaries and is to benefit specific persons, rather than a group of beneficiaries. |
Right of (Mirror or Single Will) | This type of trust allows someone who is not a part-owner of your property to continue to live in it after your death (usually for a set period of time). For example, you may have an adult son or daughter who still lives at home and would like them to live in the property for a few years until they are able to move out. This can be achieved by including a right of occupation trust specifying who has the right to live in the property, and for how long. |
Will with a Life Interest Trust
Most couples will make a will gifting their estate (including their property) to each other and then to their children as a default. This is a perfectly acceptable way to make your will and is suitable for many clients, but it does not afford any protection for the property against future issues, such as bankruptcy, remarriage, or potential social care. An alternative to the standard mirror will is to make a will which includes a life interest trust offering potential protection to the property.
For this type of will, the couple making it must own their property as tenants in common (where they jointly own the property but own 50% each, rather than collectively own 100% as joint tenants). If owned as joint tenants then the law dictates that the survivor will inherit their partner’s share of the property, regardless of what their will says. We therefore change the ownership to tenants in common so each owner can include their 50% share of the property in their own will.
The individual can then specify that their 50% share is to be held for their children (or any other beneficiary they choose), whilst allowing the surviving spouse to continue to live in the property until they die. When one of the owners passes away, their share of the property is ringfenced by the trust, protecting it for the intended beneficiary. For example, if the surviving spouse was to remarry, they would not be able to give the full asset away. Similarly, if the surviving spouse was to need long-term care, the deceased’s 50% share of the property cannot, under current legislation, be considered an asset of the surviving spouse, and therefore at least 50% of the property will not be used to pay for the survivor’s care.
However, whilst these wills can protect assets for the intended beneficiaries, it is important to note that the surviving spouse is also protected under the trust; they cannot be forced to leave the property, the property cannot be sold without their consent, and the trust does not end until they also pass away.
Formalities (after death)
The trust contained in the will would need to be set up after one of the owners passes away, which would incur a cost to the estate (probate fees and Land Registry fees). Depending on the type of trust, the setting up will include transferring the assets when the trust comes into force, updating the property title on the Land Registry, as well as registering the trust with HMRC. We can assist the estate in setting the trust up and for these types of wills we also draft a letter of wishes which makes it clear to the executors what action is required, and why this particular trust is included in the will.
Disadvantages of including a Trust in your Will
Clients need to be aware that the trust contained in the will only takes effect when they pass away: there is no immediate protection, and nothing is set up during your lifetime. If you want to provide immediate protection to your assets during your lifetime, rather than in your will, then you may wish to make a lifetime trust instead.
Advantages of including a Trust in your Will
Whilst a lifetime trust is often irrevocable (they cannot be cancelled), a will trust is less permanent: whilst you are still alive and can still make decisions for yourself, you can change your will at any time. If you include a trust in your will but later change your mind, then you can remove it by making a new will or making a codicil to replace the specific trust clauses. Similarly, if you make a will trust but later decide you want to make it more permanent by making a lifetime trust, then that option is also still available.