If you’re writing your will, but your beneficiaries are young or you’re worried about their ability to manage an inheritance, you might want to consider setting up a will trust.
A will trust enables you to pass money on while putting certain restrictions in place around who will benefit from this and when. For example, a will trust may be suitable if you want to pass money on to grandchildren but don’t want them to access this until they reach a certain age.
Here, we explain how a will trust works, the different types, and how to set one up.
What is a will trust?
A will trust is a legal arrangement detailed as part of someone’s will that outlines how their money will be managed or distributed on their death. It’s generally aimed at preserving inheritance to be passed onto future generations when they reach a particular age. A will trust typically involves appointing trustees who will be responsible for managing assets until they can be passed on to beneficiaries under the terms set out in the will trust.
What are the different types of will trust, and how do they work?
There are different types of will trusts that suit a wide range of scenarios, and which is most suitable will depend on your personal circumstances and wishes:
Discretionary trust: This type of trust is set up to pass on some of your estate to a trust created in your will that only comes into force when you’re no longer around. Discretionary trusts are often used to pass money on to young children or vulnerable adults, for example. You name the people, or trustees, who will manage the trust and who will be the beneficiaries that should receive income and/or capital from your estate. A discretionary trust is particularly flexible, as you’re enabling the trustees to make decisions over when, and how, your beneficiaries receive the money.
Bare trust: A bare trust may be used, for example, to leave money to a child or grandchild if you die before they reach the age of 18. They will be able to inherit the money contained in the trust, and any income received on this, when they reach this age. You choose the trustee when you write your will, whose name the trust will be held in until this stage. They will pass over the trust fund to the child or grandchild to give them their inheritance.
A fixed-interest trust: Children who are named as beneficiaries in the trust typically inherit when they reach the age 18, but in the case of a fixed-interest trust, you can state that they won’t inherit until they are older. For example, you could increase the age at which they inherit to 21, or 25, or older if you want.
Life-interest trust: This type of trust is used to leave money and property to someone for their lifetime. They are typically your spouse or partner, who will live in your home until they pass away, with the property then passing to your children or grandchildren. The beneficiary of the trust is also entitled to any income or interest received on money held in the trust but the actual value of the asset, known as the capital, is protected for future beneficiaries.
Trusts and estate planning can be a complex area, so you may want to seek professional financial advice on the different options that might be available to you.
If you’re considering getting professional financial advice, Aviva is offering Rest Less members a free initial consultation with an expert to chat about your financial situation and goals. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
What are the benefits of a will trust?
There are a number of reasons you might want to set up a trust when you’re writing your will, such as stating a particular age at which your child or grandchild may inherit, protecting your share of a property for future beneficiaries. You can also use a trust to protect vulnerable beneficiaries who need help managing an inheritance.
Setting up a trust could also help to protect assets from potential legal disputes in the future, as they make it difficult for an inheritance to be challenged at any stage if, for example, a spouse remarries. You may give your trustee the power to make decisions about who needs the money most in the future, too, rather than passing all your children the same share of your estate.
A will trust could also reduce liability to inheritance tax (IHT). Beware, though, that 20% tax may be charged when setting up a trust on assets that exceed the inheritance tax nil rate band (£325,000 per person, or £650 for a married couple).
A will trust may be used to eventually pass on an inheritance to young children, but another reason for setting one up may be on behalf of a vulnerable, or disabled adult who isn’t able to manage their own finances. You can appoint a trustee to effectively take on this responsibility on their behalf.
A will trust could also ensure that your spouse receives an income from investments, for example, on your death, but your children inherit the capital. This may be a suitable set up if you’ve remarried and want to protect your children’s inheritance after your death.
Who should you name as trustees?
Whoever you name as executors in your will are often the same people as the trustees, but it’s possible to choose someone else for this role if you wish to do so. Bear in mind that the role comes with some responsibility, and could mean the person may face difficult decisions in the future depending on the nature of the trust and beneficiaries involved. You can usually choose up to four trustees if you’re setting up a trust, who must all agree when making decisions. You can appoint a solicitor as a trustee, if you want.
How can you set up a will trust?
You can set up a simple bare trust, for example, through a will writing service to ensure that your child or grandchild inherits when they reach the age of 18. If your situation is more complex, though, you may want to use a solicitor’s services to set up a trust when you’re writing your will. The cost of setting up a trust varies widely, depending on your personal situation and the type of trust, but you can expect to pay from around £300, or much more if your circumstances are complicated.
You’ll need to choose trustees, usually parents or other relatives who are responsible for managing the trust in line with your wishes. Trusts must be registered with HMRC’s Trust Registration Service, but a will writing service or solicitor can manage this process on your behalf.
You may want to include a ‘letter of wishes’ with your will and trust to provide some guidance for any named trustees on how they should manage the trust and what your wishes are. This could detail, for example, how you’d like the money to be distributed and what it might be used for.
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