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When You Should Create a Will Trust
When You Should Create a Will Trust

Reasons you may want to consider creating a Will trust in your Will

Sindy Allen avatar
Written by Sindy Allen
Updated over a week ago

There are a number of reasons why you might want to create a Will trust.

Control and protect family assets

One of the principal reasons for creating trusts in a Will is to ensure that some control is exercised over family assets.

It may be that you know you want your children (or another group of people) to be the main beneficiaries of your estate but you don’t know, at the time of writing your Will, how to divide it up between them. By leaving your estate on discretionary trusts, you can leave this decision to your Trustees, who can decide how the assets should be distributed after your death. That would allow them to take particular circumstances into account, such as particular beneficiaries’ financial situations at the time, or any tax considerations, and so on.

Of course, you can leave a letter of wishes to your Trustees letting them know your broad intentions or the principles that you would like them to follow. Any letter of wishes is not binding on the Will Trustees, but it is likely they will follow your guidance if you have chosen appropriate people. An advantage of a letter of wishes is that it does not have to be witnessed in the way a Will does, so can be replaced and updated very easily.

Equally, by placing property or assets in trust, you can ensure that it is not disposed of completely, but continues to be invested or used to generate income and provide for the beneficiaries.

Avoid inheriting when too young

It may be that you want to delay the age at which a beneficiary receives their inheritance. Unless otherwise specified a person is entitled to receive their inheritance at 18, but you may want to postpone that, perhaps to 21 or 25, so that it does not distract them from their studies or career.

You can do this by providing in your Will that the inheritance, whatever it may be, is to be on trust for the beneficiary until they have reached that age. Often the beneficiary will be entitled to receive income from the trust – such as interest on investments or income from rented property – until they have reached the specified age. These sorts of trusts are commonly known as 18 to 25 trusts.

There may be inheritance tax implications for keeping assets in trust for young people beyond the age of 18, so it is best to have legal advice on this point.

Reduce IHT liability

As a rule, inheritance tax of 40% is payable on anything over £325,000 of the value of your estate. But both the amount of the estate that is taxable, and the rate of tax payable, can be more advantageously planned by putting property in trust.

There are a number of exceptions to this, and it can be tricky to plan, so it is best to have specialist advice, especially if your estate is large or complicated.

Life interests

It is possible to give a life interest (a right to the income or other benefit of their estate) to a beneficiary (for example, your partner), and then have the capital of your estate pass intact to some other beneficiaries on your partner’s death.

This would typically be the case if you are in a second or subsequent marriage. On your death you might wish your spouse to be able to continue living in the family home for their lifetime, and afterwards for the home to go to your children from a previous marriage.

The Will trust in that case creates a trust for your spouse for their lifetime, and then the property passes to the children. Depending on the terms of the trust, your spouse is unlikely to be able to dispose of the property - at least, not without the Trustees’ permission. But they will have the security of knowing that they can continue to live in the family home for the rest of their life.

Protect the family home from being sold in order to pay for residential care

When the local authority assesses whether someone is entitled to financial support for care home fees, they take into account the value of the individual’s assets, including their home. So it is a worry to people that after they have died, their partner may not qualify for assistance and be forced to sell their family home in order to pay the costs of residential care.

For a couple who own their own home, it may be possible to safeguard at least half of the family home’s value by changing the way you own the house (from joint tenants to tenants in common) and each partner having an effective Will in place.

Joint tenants or tenants in common?

Most couples own their property as ‘joint tenants’ which means that if one of you dies, that person’s share of the property automatically passes to the other person regardless of the provisions of their Will. The surviving person will own the whole of the property. This could mean that if they need to go into a care home, the whole value of the property could be used to pay their fees and will be taken into account in any care home fee assessment.

This situation could be avoided if the couple were to hold the property as ‘tenants in common’.

Tenants in common each have a defined share in the property: in the case of couples this is typically 50:50. If one of you dies, that person’s share passes under their Will, not automatically to the other partner. The Will could provide for that person’s share of the house to pass to:

  • your children; or

  • perhaps to a trust which allows the surviving person to live in it for the rest of their lifetime.

Then the surviving person will only own half of the value of the property in their own name and this (rather than the full value of the property) will be used when assessing their eligibility for assistance with care home fees. The other half of the property can be preserved for future generations.

Making a Will is very important in this situation. If you don’t have a Will then even if you own the property 50:50 as tenants in common, your share may well pass to your spouse or civil partner, and the whole value would be assessable.

Is the house transferred into a trust?

By changing the way you own the property from joint tenants to tenants in common, you are not putting the house into a trust (which would change the legal ownership of the house into the names of the Trustees). You simply need to complete a declaration of trust to sever a joint tenancy. This should then be sent to the Land Registry so that a note can be put on the register of the property. (That will mean that the beneficiaries of your share of the property would not be able to sell the property without notifying the other tenant in common.)

Make sure you have an effective Will in place

It is essential that if you sever the joint tenancy that you both have an effective Will in place to ensure that your respective shares of the house are dealt with in accordance with your wishes on your death. You can make provision in your Will to allow the surviving person to live in the property for the rest of their life without transferring the value of the property to them.

If you want to use your Will to minimise the possibility of the house being sold for care home fees you should seek specialist advice.

When a Will trust is not needed

If none of the situations above apply to your estate, then it probably means that there is no need to create a Will trust in your Will.

Equally, a Will trust is not needed if all of the intended beneficiaries of an estate are over the age of 18 and you want them to inherit any assets outright in their own name.

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