What happens to Trusts in Wills following a death?

A Trust is a legal arrangement that can form part of a person’s Will and come into effect upon death, granting the named Trustees in a Will control of assets, such as funds and property, on behalf of the beneficiaries. Various types of Trusts can be written into a Will, depending on an individual’s circumstances.

This blog will provide an overview of our experience of working with Trusts in Wills upon death, specifically exploring Property Trusts, Nil Rate Band Discretionary Trusts (NRBDT), and Trusts for Minors.

Property Trusts

When a Property Trust is involved, the first thing that we look out for is whether the Trust is drafted correctly within the Will. Occasionally, we find Property Trusts incorrectly drafted due to the life tenant and the remainderman being specified as the same person – ultimately, the remainderman will fail when it comes to the life interest ending. Additionally, we often come across scenarios where the Property Trust is referenced to one property only with no wording to cover any property owned in the future, but the Will was drafted twenty years prior – the original property has often been sold and a new property purchased but not included as an additional address under the Property Trust. To avoid this scenario, it’s best practice to read the details of a Property Trust to ensure it’s correct for setting up and running on an annual basis.

On the basis that the Property Trust is set up correctly, we are commonly asked the question “is probate required?” – what we sometimes find on first deaths where the spouse has the life interest, is that the Executors will say the spouse still owns the property and therefore doesn’t need to do anything. However, to get this set up correctly and confirm that the property is in the Trustees’ names, the Land Registry should be updated to ensure the Trustees' names are put on the Title along with the other surviving co-owner if there is one. Ultimately, this will make the process easier when that life tenant dies because the Trustees will have control of those assets and aren’t reliant on another Grant.

Once the work has been completed, families often ask us where the Trust document is – they are unaware that the Will is the Trust document (or the copy, as the original document will be with the Probate Registry). This is often very confusing for Trustees and family members who have no experience of dealing with Trusts. At Kings Court Trust, we always have additional documentation to support the Trust document and ensure that Trustees are aware of what is required from them.

Nil Rate Band Discretionary Trust (NRBDT)

An important consideration for this type of Trust is ‘discretion’. When setting up an NRBDT, Trustees have various options available to them (subject to the terms of the Will) – some may decide to appoint out of the Trust completely as circumstances or laws have changed from the time the Will was drafted. We’ve dealt with thousands of NRBDTs as part of the estate administration process, explaining the options in plain English so the Trustees can make informed decisions. We guide them through their options and ensure they fully understand their role and responsibilities to cover all beneficiaries and not just the surviving spouse; they need to make responsible decisions (taking independent advice as appropriate), rather than just considering the best Inheritance Tax (IHT) solution.

An NRBDT can be difficult to read and understand from a layperson’s perspective. We find that the discretionary element of this type of Trust is what generates the most questions from beneficiaries, due to them not understanding that they have a chance of receiving something under the Trustee’s discretion rather than a ‘right’. The letters of wishes that go alongside an NRBDT are helpful, but they only provide guidance as it’s not legally binding; many decide not to follow the letters of wishes, and the beneficiaries will struggle to contest this decision. In many Wills that we come across, Trustees and Executors are generally not the same people, but they can be. From our experience, we often see that just one Executor/Trustee extracts the Grant of Probate. If, for example, four people are named as Executors/Trustees but the Will states that only those who obtain probate will be the Trustee(s), the other people are often unaware that they are no longer Trustees. As professionals, we’re all aware that Wills are drafted differently, and it’s all about reading the clauses in the Will to ensure that your client understands the implications of what they are doing.

At Kings Court Trust, we’ve come across many estates where on the first death, the family didn’t understand the Trust wording and just paid all the funds to the survivor; this only comes to light on the second death, which is generally when we are instructed to get involved. There are rarely any estate accounts to show what assets may be in the Trust, which creates additional work to ensure the second death’s estate does not pay too much IHT.

Trusts for Minors

Hopefully, the Trustees are clearly outlined in the Will – whether they are listed in the Executor clause or within a specific Trustee clause. These types of Trusts can be tricky because the minors might be very young at the time it’s produced. However, it’s all about trying to futureproof the Trustees in fifteen years by considering how old they will be and whether they will want to do it at that time – family circumstances can also change. Whilst as professionals we advise reviewing a Will after every life event, from experience, it’s unlikely that people will amend their Will to update the Trustees – it’s usually other areas. For Trusts for Minors, clear instructions for parental receipt clauses should be included so that we have a clear understanding of where to pay any funds. In some scenarios, we may be required to look at STEP provisions.

There are also potential problems with paying funds. It’s important to keep it separate; opening a Trust bank account used to be an easy task. However, there are very few banks that will open one of these accounts nowadays. It’s also important to keep an audit trail of the funds for tax return purposes, it will be easier for Trustees to report if it’s kept separate and it’s clear what has been received and what’s come out.

We’ve seen estates where Trustees held funds in their sole name and then passed away, meaning the funds are then stuck in the estate until a Grant has been obtained – without professional advice, people don’t necessarily understand the burden of being a Trustee. For this reason, we generally encourage a Trust to have two Trustees as if one does pass away, there is still a remainder person who should be able to appoint someone else.

At the time of writing a Trust, unless you give a minor a set sum, you won’t know what they will inherit. We suggest producing a document that covers everything that your client is comfortable with so that when the time comes, whoever is dealing with the estate can look at all the options available and make their decision. Your clients must understand the implications that their Trusts can have on Trustees at a later date.

Key takeaways

• The most common scenario that we face is where a family has done a DIY Grant but has ignored the Trust because they didn’t understand it, paying out to residual beneficiaries in the Will – this creates a lot more work later down the line and generally comes to light on a second death.
• Always stress to the Testator the importance of Trustees stepping up to the role at the point of death. The role and responsibilities of a Trustee are rarely something that families have any idea about so will appreciate the guidance.
• Advise the Trustees to take financial advice if they need help with funds – they shouldn’t shy away from it. Doing so will help fulfil their role and responsibilities and will grow the money for the beneficiaries in the future.
• Kings Court Trust is always here to help dissect the Trust with the Trustees and explain it in plain English so it’s easily understood.
• We can recommend a professional Trustee if lay Trustees are in need of support.