What is a Will Trust?

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In estate planning, will trusts (also known as testamentary trusts) serve as essential tools in ensuring that a person’s assets are distributed and managed according to specific wishes after death.

If you reside in England or Wales or have assets here, understanding the concept of a will trust is crucial. This article dives deep into the intricacies of will trusts in the UK, explaining their purpose, benefits, and the reasons why you might consider setting one up.

What is a Will Trust?

A will trust, simply put, is a trust established within a person’s will to come into effect only after they pass away. Instead of assets passing directly to a beneficiary, they go into the trust, and are managed and distributed by trustees as per the terms set out in the will.

Types of Will Trusts

Life Interest Trust: The beneficiary (known as the ‘life tenant’) has a right to income generated by the trust or its use (e.g., living in a property) for their lifetime. Upon their death, the trust assets pass to other named beneficiaries or ‘remaindermen’.

Discretionary Trust: Trustees have discretion over how to use the trust’s assets and income. This trust offers flexibility, as trustees can decide who benefits, when, and how.

Protective Trust: Combines elements of both Life Interest and Discretionary Trusts. If the life tenant becomes bankrupt or faces financial difficulty, the trust converts to a discretionary trust, protecting the assets.

Why Consider a Will Trust?

Control Over Asset Distribution: A trust allows for specific instructions regarding how assets should be used or distributed, ensuring that one’s wishes are honoured.

Tax Planning: In some circumstances, will trusts can help mitigate inheritance tax or capital gains tax.

Protection Against Financial Vulnerabilities: Assets within a trust can be shielded from creditors, bankruptcy, or divorce settlements, safeguarding them for intended beneficiaries.

Beneficiary Considerations: If you’re concerned about beneficiaries who might be too young, financially inexperienced, or have special needs, trusts ensure that they receive the right support and protection.

Preservation of Family Assets: Trusts can prevent the dilution of family wealth due to potential remarriages or claimants outside of the immediate family.

Setting Up a Will Trust

Seek Expertise: It’s essential to consult with a solicitor experienced in wills and trusts. They can advise on the best type of trust for your circumstances and draft it to be legally compliant.

Choose Trustees: Appoint individuals or professional entities you trust to manage and distribute the trust’s assets. They play a pivotal role, so ensure they’re reliable and capable.

Specify Terms: Detail how and when the trust’s assets should be used or distributed. This can range from education fees for grandchildren to care costs for a dependent relative.

Review Regularly: Circumstances change, and so do tax laws. Regularly reviewing your will and any trusts within it ensures they remain effective and reflect your current wishes.

Will trusts are powerful tools in estate planning, allowing for the tailored management and distribution of one’s assets upon death.

Whether seeking to protect assets from external claims, provide for vulnerable beneficiaries, or manage tax liabilities, these trusts offer both flexibility and security.

As always, seeking professional advice is paramount when considering and setting up a will trust, ensuring it is tailored perfectly to individual needs and circumstances.

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