How to deal with Trusts in Wills

Many Wills may have a Trust written into them but there is often confusion surrounding the reasons why it has been included and what it actually means. 

Our legal and tax team is often asked by families about Trusts in Wills. It is important to remember that although the Trust in the Will comes into effect on the day a person dies, there may be some decisions for the named Trustees to make and it may be necessary for legal documents to be drafted in order to set up the Trust appropriately. The Will becomes the Trust document. 

A Trust that is contained in a Will comes into effect when the Executors who have administered the estate transfer the assets (such as money or land) into the hands of Trustees. The Trustees are the legal owners of these assets but are not entitled to any benefits of the Trust, unless they are named as a beneficiary themselves. The Trustees are obliged to hold and manage the property for the benefit of a person or a group of people, who are called beneficiaries.

Trustees who are named in a Will have the option to take up their role or they can choose to retire their duty as Trustee if they so wish.  The power of appointing a new Trustee lies with them, in most instances. For Trusts involving land, at least two Trustees must be appointed.

There are several types of Trusts but the most commonly used include:

•    Trusts for minors - Many Wills contain legacies for minors, which can be in the form of an outright gift or a contingent gift (for example, dependent on the minor reaching a certain age). In either case, since minors cannot hold monies in their own right, it will be necessary for someone to manage the monies until the minor is entitled to the gift outright and is able to legally hold the money themselves.

•    Discretionary Trust - The Trustees have discretion to whom and when payments should be made, from a class of beneficiaries. Trustees are usually given discretion as to the investment of the fund. This type of fund may or may not be allowed to accumulate income. Discretionary Trusts are often used when there are concerns that a beneficiary may act irresponsibly if given assets outright to him or her. Some Wills may also contain a Nil Rate Band Discretionary Trust which can be very effective in some circumstances (for example, asset protection and protecting vulnerable beneficiaries from receiving large sums outright).

•    Interest in Possession (IIP) Trust - The beneficiary (usually the surviving spouse or civil partner) has a right to the income but not the capital of the Trust monies invested. The capital is then given outright to another beneficiary (usually children) upon the occurrence of a specified event, most commonly upon death of that beneficiary.  For example, a beneficiary has a right to occupy a property for their lifetime and to enjoy any income arising from the property (if the property is rented out). However, upon their death the property (capital and income) is left to someone else.

As part of our estate administration service Kings Court Trust can assist with Trusts and answer any questions that you may have.  Contact our client services team on 0300 303 9000 for an informal discussion to find out more.