13 Mar What is a Trust…?
Many Wills may have a Trust written into them but there is often confusion surrounding the reasons why it has been included and what it actually means.
A Trust in a Will comes into effect when a person dies, when their Executors who have administered the estate transfer their assets (which might include money or property) into the hands of Trustees. The Trustees are the legal owners of these assets but are not entitled to any benefits of the Trust, unless they are named as a beneficiary of the Trust. The Trustees are obliged to hold and manage the property for the benefit of a person or a group of people, who are called beneficiaries.
Like anyone appointed in a Will, the Trustees have the option whether to take up their role at the time they are required, which may be many years after the Will was written. Trustees are entitled to choose to retire their duty as Trustee and appoint someone else to take over – which is advisable in circumstances where they feel there may be a conflict of interest. In Trusts involving ‘property’ (land & buildings) at least two Trustees must be appointed.
There are several types of Trusts but the most commonly used include:
Trusts for minors
Many Wills contain legacies for minors, which can be in the form of an outright gift or a ‘contingent’ gift – eg being dependent on the minor reaching a certain age. In either case, since minors cannot hold monies in their own right, it will be necessary for someone to manage the monies until the minor is entitled to the gift outright and legally hold the money themselves.
Here, the Trustees have discretion over to whom and when payments should be made, from a range of ‘potential’ beneficiaries. Trustees also have the discretion as to how to manage and invest the fund, and whether to pay out or to accumulate income. Discretionary Trusts are often used when there are concerns that a beneficiary may act irresponsibly if given assets outright, and where beneficiaries are likely to have differing needs eg different family generations.
A ‘Nil Rate Band’ Discretionary Trust (NRBDT) was a widely used option before October 2007 to best mitigate Inheritance Tax (IHT) between spouses. As a result of changes to the law applying to IHT in October 2007, are no longer required for IHT purposes in Wills between spouses, but can still be very effective in other circumstances eg asset protection and protecting vulnerable beneficiaries from receiving large sums outright, or as initially used, in the case of unmarried partners.
Interest in Possession (IIP) Trust
With an IIP Trust, the beneficiary has a right to the ‘income’ but not necessarily the capital of the invested Trust fund. The capital is then given outright to another beneficiary upon the occurrence of a specified event, most commonly on the death of the income beneficiary. These Trusts are commonly used to provide for a surviving spouse after 1st death (eg giving them the right to occupy a property for their lifetime and to enjoy any income arising from liquid assets) but protecting the assets in the Trust from the survivor’s potential future care fees or remarriage, so that, on the death of the survivor, the capital (Trust assets) pass to the chosen beneficiaries of the 1st to die.
Trusts are a very useful estate planning tool, both for asset protection & inheritance tax mitigation purposes. Heir Tight Wills helps clients put in place robust provisions and valid documents – including the relevant Trusts for their situation – to protect their loved ones and their assets both during their lifetime and after their death. For a FREE Consultation to discuss writing or updating your Will & estate planning provisions, contact Rachael Rodgers on 0845 519 7585, or CONTACT US via email.