Will Trusts
A will trust forms part of your will, allowing you to designate trusted individuals, often family members or close friends, to manage your assets. When you die, trustees distribute your estate to the people you've chosen in your will.
With a will trust, you can specify the age at which beneficiaries receive their inheritance and even protect a portion of jointly owned property. Plus there are some tax advantages to consider. This makes them a popular choice for estate planning.
If you're considering setting up a will trust or need help managing one, our network of wills, trust, and probate lawyers is on hand to provide fast, affordable legal services.
Contact us today to discuss your needs and get a transparent fixed-fee quote for the services of a specialist lawyer.
What is a will trust?
A will trust is a legal arrangement established within a will that allows assets, like property, money, or shares, to be held in trust for specific beneficiaries.
Will trusts typically come into effect after the death of the testator when assets placed in a will trust are managed by appointed trustees for the benefit of named individuals (called beneficiaries) according to the terms outlined in the will.
What is the purpose of a will trust?
A will trust has a wide range of uses, offering flexibility and protection for your assets. Common applications include:
Providing for vulnerable loved ones and ensuring they still qualify for benefits while receiving support.
Contributing to the cost of education for grandchildren or children.
Providing for a second spouse during their lifetimes.
Protecting assets from ex-spouses, creditors, and other potential threats.
Ensuring that minors and young people receive financial support in the event of a guardian's death.
What are the benefits of will trusts?
Will trusts offer various benefits, including:
Providing for beneficiaries who may be too young or otherwise unable to manage their inheritance.
Protecting assets from being squandered or mismanaged.
Mitigating Inheritance Tax liabilities.
Ensuring assets are distributed according to the testator's wishes, even if circumstances change after their death.
Who can be a beneficiary of a will trust?
A beneficiary can be:
A named person
A class of people – such as grandchildren and their descendants
Charities
Organisations, for example, a company or sports club
Children who haven’t been born can also be named beneficiaries.
Who can be named as trustees of a will trust?
Trustees can be family members, friends, or professional advisors.
Trustees are responsible for managing the assets held in the trust and must act in the best interests of the beneficiaries. As such, they should be able to carry out their duties impartially and responsibly.
What are the different types of will trusts?
Bare Trusts: Where beneficiaries have an immediate and absolute right to both income and capital.
Discretionary trusts: Where trustees have discretion over how to distribute assets among beneficiaries.
Life Interest Trusts: Where a beneficiary (the life tenant) has the right to receive income from the trust assets for their lifetime, with the capital passing to other beneficiaries upon their death.
Protective trusts: Where trustees have discretion to protect assets for vulnerable beneficiaries, such as minors or individuals with disabilities.
How are assets transferred into a will trust?
Assets are transferred into a will trust by way of the testator's will.
The will says which assets are to be placed in the trust and outlines the terms and conditions governing their management and distribution.
How are assets managed in a will trust?
Assets in a will trust are managed according to the terms outlined in the trust deed, which is a legal document that establishes the trust's rules and objectives.
Assets may be held in the trust until the beneficiary reaches a specified age, typically 18 or older. At that point, the assets may be distributed to the beneficiary outright.
Alternatively, the trust deed may say that assets should be distributed to the beneficiary periodically, such as on specific birthdays or at certain milestones.
In addition to these methods, trustees may also have the authority to invest trust assets to generate income or growth over time.
Can I change the terms of a will trust after it's been set up?
The terms of a will trust can usually be amended or revoked by the testator during their lifetime, provided they have the mental capacity to do so.
After the testator's death, the terms of the trust typically become irrevocable, although there may be limited circumstances where changes can be made with court approval.
How are will trusts taxed?
Three types of tax come into play with trusts: Income Tax, Capital Gains Tax, and Inheritance Tax.
Income Tax
Trustees are typically responsible for paying income tax on trust income, but the specific rules and rates vary depending on the type of trust and the income
For example, in discretionary trusts, trustees are responsible for paying income tax but, in bare trusts, it's the beneficiaries who are responsible for paying income tax on the income they receive from the trust.
Capital Gains Tax
Capital Gains Tax is a tax on profit made from selling or transferring something valuable that has increased in value (i.e. property).
CGT might be payable in a will trust if trustees sell or transfer assets on behalf of the beneficiary unless the assets are transferred to the beneficiary in a bare trust.
However, trustees only pay CGT if the total taxable gain exceeds the trust's tax-free allowance, which is £1,500 for the 2024-2025 tax year (or £3,000 if the beneficiary is vulnerable).
Trustees may also reduce the amount of CGT payable by claiming certain reliefs, like Private Residence Relief or Business Asset Disposal Relief.
Inheritance Tax
Inheritance Tax applies to trusts in various circumstances, and different rules and rates may apply depending on the situation.
Inheritance Tax is paid on relevant property, including money, shares, houses, or land and can apply when:
Assets are transferred into a trust
A trust reaches its 10th anniversary,
Assets are transferred out of a trust
While there are some potential tax liabilities associated with will trusts, they can still offer tax planning opportunities, such as utilising annual exemptions, distributing income to beneficiaries in lower tax brackets, and other tax-efficient investment strategies.
If you are concerned about tax liabilities relating to your estate, you should seek advice from a qualified financial advisor or solicitor with experience in trust taxation to make good use of the best strategies for your situation.
How do I set up a will trust?
To set up a will trust, you should make a will that includes provisions for the establishment and administration of the trust.
It's advisable to seek professional legal advice from a trust lawyer when setting up a trust to make sure it accurately reflects your wishes and complies with legal requirements.
Can I create a will trust myself, or do I need a solicitor?
There’s no legal requirement to use a solicitor when setting up a will trust. However, an experienced trust solicitor can help you decide:
They will also be able to advise you on which structure is best for your needs and help you identify inheritance tax savings that can be made.
Can I dissolve a will trust?
You can dissolve a will trust with court approval if its purpose has been fulfilled or it becomes impractical or impossible to continue administering the trust.
Can a will trust protect against legal claims against my estate?
Assets placed in a will trust are legally owned by the trust, rather than by the individual who established the trust (the settlor). This separation of ownership can help shield the assets from legal claims against the settlor's personal estate (known as Inheritance Act claims).
Furthermore, because assets are owned by the trust, they may be less vulnerable to claims from creditors of the settlor. Creditors typically cannot access assets held in a properly structured trust to satisfy the personal debts of the settlor.
Trust deeds can include provisions to protect the trust assets from legal claims, such as spendthrift clauses restricting beneficiaries' ability to transfer their interests in the trust or provisions specifying how assets should be distributed in the event of legal challenges.
How can Lawhive help with will trusts?
At Lawhive, our experienced network of wills, trust, and probate solicitors specialise in estate planning and trust law.
They are on hand to provide personalised advice and assistance in all aspects of setting up, administering, or managing a will trust.
Contact us today to schedule a free consultation and discuss your needs with a Legal Assessment Specialist.