I deal with clients daily who, because of circumstance or the nature of their wishes, need or want to incorporate a trust into their wills. This can be a potentially daunting conversation for a client, often owing to a misconception that trusts are complex and a concern of only the super wealthy.
In a wills context a trust is generally a means of providing benefit to named individuals without the underlying assets passing into their hands, at least not immediately. Trustees look after assets, referred to as the trust fund, on behalf of the people intended to receive the benefit of the trust fund, known as the beneficiaries.
A trust can be used in a will for a variety of purposes, from protecting the family home for future generations to providing a fund for a vulnerable loved one who is not able to look after their inheritance personally.
Commonly encountered circumstances prompting trusts to be considered and included in a will are:
A blended family
Often a couple where one or both parties have children from previous relationships. It is not unusual in this circumstance for a couple to want to benefit each other but also to each ensure that their own children still inherit in the long term.
In this scenario a trust incorporated in the couple’s wills, coming into effect on the first partner’s death, could provide for the survivor’s continued use and enjoyment of assets. Their wills would also set out what happens to the trust assets on the second death; in this scenario with each generally opting to benefit their own children with what remains.
A common concern between couples, particularly those with children. A surviving spouse could go on to meet and marry a new partner after the first of the couple has passed away. In turn this could mean that an existing will, perhaps benefitting the children of the first marriage, is inadvertently revoked or that the survivor’s priorities shift slightly and a new will is made on different terms.
As with the approach for blended families, a trust could provide for the survivor’s continued use of assets and for the ultimate benefit of the children. This could therefore guarantee some benefit for the children regardless of the survivor’s future relationships.
Concerns about a beneficiary’s ability to manage an inheritance
This is a common factor prompting the inclusion of a trust in a will. Whilst a trust could be used to cover a far wider range of concerns, they are commonly a means of safeguarding the inheritance of a beneficiary who may have one or more of the following issues: addiction, relationship problems, debt or general vulnerability. A trust here would mean the trustees could use monies for the benefit of the beneficiary and take a decision on and ongoing basis as to how and when is best to release funds.
Flexibility is often required where it is unclear what the future holds. This could be because intended beneficiaries are wealthy in their own right or because it is not possible to say today which of a group of chosen beneficiaries will have greater need for the inheritance at a later date. In circumstances where there is difficulty in deciding how best to balance the needs or interests of different generations or beneficiaries, a trust could be incorporated to allow a ‘wait and see’ approach to be taken. The appointed trustees would have discretion as to how to use and apply the monies amongst a group of named beneficiaries after the date of death. They could therefore take into account the circumstances at that time in deciding how best to apply or divide the money for the beneficiaries.
Widows, widowers and remarriage
Whilst a detailed explanation of its working is beyond the scope of this article, individuals who have previously been widowed and remarried could use trusts to seek to take advantage all inheritance tax allowances available to them.
Unmarried partners could also seek to include trusts in their wills to provide for their surviving partner but without the assets forming part of the survivor’s estate. This can be a means of addressing concerns whereby assets inherited between unmarried partners are subject to inheritance tax on the death of the first, are amalgamated into the estate of the second during their lifetime and potentially taxed a second time on the survivor’s death.
There are many other reasons or situations in which an individual might consider a trust in their will.