What is a Trust Will?
A Trust Will includes additional provisions which confirm the type of Trust which must be set after the testator (the person making the Will) dies. Trusts are used for many reasons but mostly to safeguard assets, allowing beneficiaries to live in property without actually inheriting it, protecting young or vulnerable beneficiaries or to maximise tax relief.
What types of Trust Wills are available?
Discretionary Trust – this is where the trustees have wide discretion as to when and how payments are made from the Trust Fund. The person making the Will can name a range of people who can benefit, allowing the trustee to decide.
Life Interest Trust – this is the most common type of Trust Will we draft and mostly relates to property and the family home. Below are two examples of these types of Wills and why they differ from a standard Single Will (for one person) or a Mirror Will (for couples)
Life Interest Trust Will vs Standard Single Will – for Individuals:
Often we get individuals who may have children from a previous marriage or relationship and they are currently living with a partner to whom they do not share children with. A standard Single Will would either involve gifting property to the testator’s children (meaning the partner must leave) or gifting it to the partner (meaning the children will miss out).
An alternative is making a Trust Will which gives the partner a life interest in the property. This means the testator can gift the property to their children but allow the partner to continue to live in the property until they pass away or choose to no longer live there. The children will receive their inheritance once the partner has passed away or moved out of the property. In the meantime, the partner can continue to live in the property without being forced to leave.
This interest can be for life or it can be for a set period, for example 12 months or 2 years etc. if the main concern is that the partner will need time to find an alternative property.
Only a Trust can protect the partner’s right to live in the property and also the children’s right to inherit it eventually.
Life Interest Trust Will vs Standard Mirror Will – for Couples:
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 an acceptable way to make your Will, but it does not include much 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 Trust Will which includes a Life Interest Trust offering some protection to the property. For these types of Trust Will, the
couple making the Will must own their property as tenants in common. This is where they jointly own the property but both own 50% each, rather than collectively own 100% as joint tenants. If a couple own their property 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 clients’ ownership to tenants in common so that the couple can include their 50% share of the property in their Trust Will.
The client can then specify in their Trust Will that their 50% share of the property is to be held for their children, whilst allowing the surviving spouse to continue to live in the property until they die. This effectively ring fences their share of the property, protecting it for the intended beneficiary. For example, if the surviving spouse was to remarry, they would not be able to give the assets away.
Similarly, if the surviving spouse was to go into long-term care, the deceased’s 50% share of the property cannot, under current legislation, be taken into account as an asset of the surviving spouse.
However, whilst these Trust Wills protect assets for the intended beneficiaries, it is important to note that the surviving spouse is protected under the Trust Will. They cannot be forced to leave the property, the property cannot be sold without their consent and the Trust does not end until they die or decide to live elsewhere.
What are the disadvantages of a Trust Will with a Life Interest Trust?
There are formalities required in transferring the assets when the terms of the Trust Will come into force. The Trust contained in the Will would need to be set up after you pass away, which would incur a cost to the Estate. Alexander Legal Services can assist the Estate in setting the Trust up but clients need to be aware that the Trust contained in their Will only takes effect when they pass away and the Estate set the Trust up. Executors often miss the terms of the Trust when they read the Will, which is why Alexander Legal Services will include a Letter of Wishes with the Trust Will which provides guidance to the Executors and advises them that the Will includes a Trust to be set up.
What are the advantages of a Trust Will with a Life Interest Trust?
The main advantage is flexibility. If a client set up an outright Property Protection Trust, rather than include the terms of the Trust in their Will, they would relinquish control of their property immediately. This could restrict them from moving house or having a say in how their home is managed.
If your intention is to ring fence your assets immediately, then you should consider setting up a Trust to take effect now, rather than upon the death of your spouse. You can visit our Trusts page for further information.
Contact us today for a no obligation appointment to discuss your Will.