‘Trust’ is a familiar term, but what is a trust in a Will?Wills, Probate and Tax specialist Jenny Greenland explains.
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A trust is a legal arrangement where people (trustees) hold and manage assets on behalf of one or more other people (beneficiaries). The person creating the trust (the settlor) can create the arrangement in their lifetime or postpone the trust until they die.
Once assets are in trust, the settlor no longer owns them, and there’s a presumption that the beneficiary has no control over them. But that said, it’s permissible for a beneficiary to be a trustee, although this always raises a risk of a conflict of interest.
What is a trust in a Will?
In planning what happens to your estate after you die, trusts can:
- help achieve your wishes;
- protect estate assets; and
- are a useful tool in Inheritance Tax planning.
In any trust, the settlor chooses the rules determining what should happen with any cash, investments, or property. The trustees have a legal obligation to manage the assets on behalf of the beneficiaries in accordance with those trust rules.
The most common use of a trust in estate planning is when parents leave all or part of their estate to a child or children but wish to delay when they gain control of the assets to an age greater than 18.
Types of trust in estate planning
There are many types of trust. Also, trust law is complex, with many traps for the unwary and taking expert legal advice is crucial. Some of the more common trusts encountered in estate planning are:
In a discretionary trust, the trustees have the final say in distributing trust assets to the beneficiaries. This is a useful way of preventing beneficiaries from inheriting money too early or at an inappropriate time.
As the name suggests, this is a very simple form of trust. Any beneficiary with mental capacity has control of the assets once they reach 18. But this form of trust is inappropriate when a beneficiary is vulnerable.
Life interest trust
A life interest trust entitles the beneficiary to:
- the income generated by the assets in the trust; or
- to live in a property held in such a trust.
However, they cannot access the property, investments, or cash generating income without the trustees’ authority.
Vulnerable person trust
A vulnerable person’s trust is a broad term applying to a trust created for a beneficiary who needs:
- financial support; and
- assistance in managing their affairs due to lack of capacity.
A vulnerable person’s trust is broadly similar to a discretionary trust. However, the key difference is that the trustees must apply the trust assets to benefit the vulnerable person. This type of arrangement can benefit from special tax treatment.
For any issue concerning a vulnerable person, you should consider appointing a deputy.
See also the Government’s pages on the Court of Protection.