Why might you include a Trust in your Will?

Trusts have a broad range of applications to modern families.

Before we look at what a trust actually is, in broad terms, trusts may have practical relevance for you where you have a need:

• to protect vulnerable persons;
• to protect assets;
• to plan how the succession to your estate following your death can best be managed to achieve the outcome you want.

In certain circumstances, a Will with some form of trust provision in it can be a good idea.

This article considers some of the possible scenarios where use of a trust might be considered.

What is a trust?

A trust is a legal relationship that exists between three people, known as a truster, a trustee and a beneficiary. There can be more than one of each or any of these people.

The truster transfers legal ownership of the trust property to the trustees. The truster also identifies the beneficiaries they wish to benefit. The truster does not usually retain any rights in or over the trust assets.

Once transferred to them by the truster, the trustees own the trust fund.

The trustees hold and manage the trust property for the benefit of the beneficiaries on the terms and conditions set out in the trust deed.

Trustees must manage the trust assets for the benefit of the beneficiaries to whom they are accountable.

Whilst you – as a truster – can set up a trust to run during your lifetime, for the purposes of this article, we’re looking at trusts set up following the death of the truster via the mechanism of a Will.

Protection of vulnerable persons.

Trusts are often used to allow assets to be managed on behalf of people who cannot or should not own those assets for themselves. “Vulnerability” can be related to age or health or financial stability.

Here are some examples of situations where a trust may be a useful tool in managing risks which can apply where a person comes into assets or money over which they have direct control.

Children under 16 do not have legal capacity to own property or make management decisions. Even once someone is beyond age 16, they may well still lack the experience, knowledge and/or maturity to manage assets for themselves.

Anyone with issues surrounding substance abuse or gambling habits is potentially “vulnerable”. Were that person to come into even a modest sum of money, direct access to the funds could have disastrous consequences for them until they have been able to recover or put their addictions behind them.

Financial vulnerability may apply to persons who are in receipt of means-tested benefits. If they suddenly receive a capital sum or a regular income, it may jeopardise their entitlement to those benefits.

To protect assets.

Trusts can serve a protective function for assets where a beneficiary may be subject to some kind of legal claim against them.

For example, a trust can shield assets which, if they were owned by the beneficiary personally, could fall into the category of ‘matrimonial property’, and so become subject to a claim for financial provision on divorce or dissolution of a civil partnership by the beneficiary’s spouse or civil partner.

A trust can also be used to deflect possible claims by creditors where the beneficiary has existing or anticipated debt problems.

Trusts can also be useful for beneficiaries who are in a line of work where their personal assets could be at risk if, for example, they were to be sued for negligence or malpractice.

Succession planning.

A trust contained in a Will can provide a practical means to balance the interests of potentially competing classes of beneficiaries.

Take the example of a person, A, who makes a Will when they are in their second marriage and they have children from their first marriage. Using a testamentary liferent trust, A could protect the need of their spouse (B) for accommodation by giving B the right to continue living in A’s house for the rest of B’s life. On B’s death – the end of the “liferent” – the underlying capital associated with the house would pass to A’s own children.

If A simply bequeathed the house to B outright, on the understanding that it would then pass to A’s children on B’s death, this “understanding” could easily be defeated. For example, B could make a Will leaving the house to different beneficiaries.

How we can help

We hope this has been a helpful discussion of some the general principles which affect the question whether you should include a Trust in your Will.

There is a common misconception that ‘Trusts’ are only for those in financial difficulty (e.g. a trust deed for creditors) or the fabulously wealthy (e.g. ‘offshore’ trusts).

If you are thinking of making or reviewing your Will, please feel free to contact us to discuss your circumstances and needs – and what options might be available. Under the present social conditions, it is arguably more important than ever that we should ‘sort out our Will’.

We would be glad to help you. All initial enquiries are free of charge and without obligation to take things further.

It is often still be possible for us to take you through the whole process from getting first instructions to signing a Will even though we cannot meet with you face-to-face.

Get in touch with us by phoning on 01343 544077 or sending us a Free Online Enquiry via this website.