What is a Trust Will?

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What is a Trust Will?

What is a Trust Will?

Ian Winterbotham talks us through Trust Wills.

What is a Trust Will? How do Trust Wills work?

A Will can only create a trust when someone dies. So a will creates a trust on death, which acts like a safety deposit box for which the trustees hold the keys. All the trustees must be present to open the safety deposit box. The Will determines what assets are put into this box.

How can a Will Trust be beneficial in estate planning?

For a married couple, it can protect assets from being lost to pay for care fees or through the remarriage of the surviving spouse. It also protects from assets being lost due to unwise decisions – including vulnerability, such as if the surviving spouse gets older and confused.

You could put your share of your home in the trust and keep it safe for your children or your bloodline. That could provide security for your children and all your descendants; your grandchildren and great grandchildren as well.

What are the legal requirements of a Trust Will?

The trust is created when the testator dies. It’s created by the Will, and the trust is a legal deed. The legal requirements are created when someone dies.

Do I have to have a trust in my Will? Who is a Trust Will for – can anyone get one?

No, you do not need to put a trust in your Will to continue for the next 125 years. You could consider a standard Will, where your executors have the powers to distribute your assets directly to the beneficiaries.

A Trust Will is typically for people who want to protect their assets and ensure that their children and descendants can benefit from the savings, investments and property that has been acquired through a lifetime of hard work.

There are numerous different scenarios. But essentially a trust will is designed to protect property and other assets.

What are the types of Trust Wills?

We’ve got three options:

Property Trust Will

This is for couples who typically want to protect their property from being possessed to pay for care fees or lost on remarriage.

A Property Trust Will ensure that your half of the family home will end up with your children and not the children of a future partner of the surviving spouse. It’s also designed to prevent the local authority from possessing your half of the property to pay for care fees if you’ve passed away and the surviving spouse requires long-term care.

They receive a life interest in your half of the family home. This gives them the legal right to live in the property for the rest of their life. They have the right to use the proceeds from the sale of your half of the property to purchase another property. It protects your half of the property and the proceeds for your children.

Flexible Life Interest Trust Will or Flexible Family Trust Will

This creates a trust which takes in the Testator’s half of the family home plus any other assets that the holder may own in their own name – maybe ISAs, investments or even second or third properties.

This type of trust can protect all your assets for future generations. The surviving spouse receives a life interest in all these assets and has the legal right to live in the property for the rest of their life. It also gives them the legal right to enjoy the income from all the other assets.

When the surviving spouse dies, the trust can continue in the form of a discretionary trust. On second death, the trustees can protect these assets from being lost in the event of divorce or bankruptcy of the children.

The assets then pass to their children, so your grandchildren or even great-grandchildren can be left free of inheritance tax. The trust can continue for 125 years.

Discretionary Trust Will

This would typically be for single people. The trust takes in the testator’s assets and can protect them for future generations. The named trustees decide who benefits from the capital and who benefits from the income when the assets are distributed.

The trustees will also protect the assets from being lost in the event of divorce or bankruptcy of the beneficiaries. Assets are left for the beneficiaries’ children, or grandchildren or great-grandchildren, free of inheritance tax. This trust can also continue for 125 years.

Just to add, most flexible life interest trust Wills and discretionary trust Wills give the trustees power to lend assets to the surviving spouse or the other beneficiaries. So, the surviving spouse can still use the capital protected by the trust to spend or invest as they choose. The children can also receive their inheritance as expected, but it’s protected from being lost if they get divorced later on in life. So to some extent, you can have your cake and eat it.

Speak To an Expert

We talk to you about who you would like to benefit and in what amounts, including specific gifts and any charitable legacies, and then help you create the will itself.

When can a Will Trust be set up? When does a Will Trust come into effect?

The simple answer is, on death. The will is the trust document and it comes into effect when someone dies.

Who could be the beneficiary of a Will Trust?

We all have testamentary freedom in this country. Whoever you wish to name can be a beneficiary of your will trust.

What does a Will trustee do? What do trustees do in a Will?

You should not underestimate the importance of being a trustee and the responsibility it entails. However, some trustees will do very little. It’s important that at least one of the trustees should take actions to protect the assets, as intended by the person who’s made the will.

Typically this involves ensuring that the property is registered in the names of the trustees at the Land Registry. It may also involve protecting the savings and investments in a trust account.

Often the trustees will just go to a local solicitor or conveyancer to update the names of the trustees at the Land Registry. A solicitor or a firm like ours can be instructed to do that. A financial adviser can usually help to set up a trust account if funds are to be retained in the trust and invested for growth.

We’ve got a lot of experience with this, so if anyone listening wants help, just get in touch. The lead trustee will be required to register the trust at HMRC and oversee the administration of the assets. There can be tax to pay and associated accountancy costs. It’s the responsibility of the lead trustee to ensure that this is all done.

The need to pay tax and associated accountancy costs can often be avoided if the trustees use their powers to lend all the assets to the beneficiaries. Usually on first death most of our clients don’t need to instruct accountants, but just be aware that these are the responsibilities.

Can my executors also be trustees?

Yes – this is the usual approach. This question is asked because people get confused with who can be a witness. And it’s important – a witness when the will is being signed should not be somebody who can benefit from the Will.

When it comes to executors, it is very logical for them to be the same people as the trustees, because they will be dealing with the assets.

How does probate work when there’s a trust? Do I need probate for a Will Trust?

It’s necessary to obtain a grant of probate in order to protect any property assets and register the property in the names of the trustees at the Land Registry.

The trustees need to prove that they have the authority to deal with the property assets. It might be necessary to obtain a grant of probate to access other assets, but not always.

What assets cannot be placed in a Will Trust?

I’m not sure I would be able to mention all of them. But, pension benefits are one example. Some people think that’s dealt with by their Will, but they’re nearly always dealt with outside of a will, these days. Pension funds have pension trustees and they distribute the pension assets to the wife or to the children outside of the estate.

Chattels such as household cars and contents are usually gifted to a surviving spouse outside of a will trust. Other gifts can be made and specified in the will and given directly to the beneficiary.

It’s important to be aware that property held abroad may not be eligible to be held in a trust.
Some countries – in fact, most countries in Europe do not recognise trusts. We generally recommend that a Will is made in the country in which the property is held, and this Will should just deal with the property held in that country and no other assets.

So if somebody’s listening to this podcast who has property abroad, that ‘s a really important point.

Life insurance policies are often written down as some of your assets when you’re doing an assessment. You can name a trust as a beneficiary of a life insurance policy, but it’s often more straightforward to designate an individual beneficiary directly. Life insurances should ideally be set up so that the proceeds do not form part of the estate and pass outside of probate.

You want the spouse or children to receive the benefits as quickly as possible, without any inheritance tax assessed on them. Let us know if you want help with this.

What are the pros and cons of Trust Wills?

We’ve already covered a lot of the pros, and the specifics will depend on your circumstances. You need to discuss this with an experienced consultant.

We can offer free consultations without any expectations of instruction. That way, you can see what the pros and cons are for your particular circumstances.

One thing is that people with equity release mortgages, or who are thinking that they may want to get an equity release mortgage in the future, can rest easy that they can draw down funds while both property owners are alive. But after one person has died, they would no longer be able to draw down any further funds. So again, let me know if you want to discuss that further.

What are the costs of setting up Trust Wills?

Typically with Will writers it would be a few hundred pounds for a single person, and occasionally up to nearly £2,000 for Triple Trust Wills for people who’ve got assets of over £2 million.

But as you can see, if you’ve got assets of over £2 million that is a tiny percentage to ensure your children will get a large proportion of your estate, regardless of what might happen in the future.

Is there anything else we need to know about Trust Wills?

I’d just like to add that it’s important to consider something called the residence nil rate band inheritance tax allowance. This is an additional allowance that George Osborne introduced a few years ago.

Property Trust Wills usually allow the executors to claim all possible inheritance tax allowances currently available, including the residence nil rate band allowances.

However, you should come to us for careful advice to ensure that Flexible Life Interest Trust Wills, Flexible Family Trust Wills or Discretionary Trust Wills – if you’re a single person – also allow the executors to claim all the possible inheritance tax allowances including the residence nil rate band.

We can now provide Double Trust Wills for those with assets above £650,000 up to £2 million on second death. That ensures your children can also claim the additional residence nil rate band inheritance tax allowance.

For people who are lucky enough to have estates above £2 million, but maybe below £2.7 million on second death, we can provide Triple Trust Wills. These ensure that your children can claim the additional residence nil rate band inheritance tax allowances, and reduce any clawback of these allowances that came in with George Osborne’s rules.

So obviously, if you’re in that position, you should contact us for free advice on this and we will be happy to hear from you.