Will Trusts

A Will Trust is a type of trust which takes effect on the death of a testator (the person making the Will). It may be an express trust i.e. expressly stated in the will or an implied trust, created by operation of law. It will grant the trustees, who are usually the executors of the will, control over assets which are to be applied for the benefit of the beneficiaries.

The will may grant a power to appoint capital and/or income for particular beneficiaries, or with a discretion as to a class of beneficiaries; the trustees having discretion as to whom within the class may benefit with any given appointment of capital and/or income.

Beneficiaries may include named individuals, named beneficiaries with a discretion, a class of beneficiaries such as grandchildren or their descendants (usually with a discretion), charities or other organisations.

An interesting point to note is that by giving to a class, for example grandchildren of the settlor, this could include grandchildren unborn at the time of the testator’s death, so it is important to ensure that any class of beneficiaries is appropriately defined.

People often think they can leave monies in a Will Trust for their pets, however, a pet cannot direct the trustees to wind the trust up or give a receipt for monies applied for them, and so this type of Will Trust would fail. Instead, a trust could be created appointing monies to a person, who would then have a discretion, guided perhaps by a letter of wishes, as to how best to apply those monies for the care of a pet.

Common Will Trusts

Life Interest Trusts (otherwise known as an interest in possession)

This grants a person (the life tenant) an interest in the trust property for their lifetime, often a right to the income generated by the trust, with the capital then appointed for the benefit of others (remaindermen) once the life tenant dies (or sometimes, where the life tenant gives up the right to income during their lifetime). This is most commonly seen in providing the right for a beneficiary to occupy a property for life, with the interest being a roof over their head for life.

Discretionary Trusts

As touched on above, beneficiaries of a Discretionary Trust do not have a right to the assets within the trust. Instead, the trustees have the discretion as to which beneficiaries within the class of potential beneficiaries to benefit, during a specified period. It is normal to specify that, at the end of the trust period, any funds remaining in the trust be divided in a certain way, as it is not possible for assets to remain within a trust in perpetuity.

Bare Trusts

These are simple trusts where the beneficiary is entitled to both the income and capital of the trust absolutely. These are often seen when the beneficiary is a minor. The trust is applied for the minor child absolutely, until they reach majority or a specified age, when the trust would be wound up.

For an express Will Trust to be validly created, there must be:

1. Certainty of intention – the testator must clearly intend to create a trust.
2. Certainty of subject matter – there must be certainty as to which assets in the estate are to be subject to the trust.
3. Certainty of subject matter – there must be certainty as to who the beneficiaries are. A class of beneficiaries is sufficient for this purpose.

Why make a Will Trust?

• The testator feels that the beneficiary would not be responsible with the monies if they were paid to them outright.
• The testator wants to mitigate the inheritance tax liability on their estate.
• The testator wants to ensure that their beneficiaries are not adversely affected by receiving a substantial amount of money as a lump sum.
• The testator wants to ensure that a vulnerable beneficiary is looked after.
• Protecting certain assets, for example, for future generations.

Frequently Asked Questions

What is a Will Trust?

A Will Trust is a trust created by a Will that takes effect when the person who made the Will (the testator) dies. It allows trustees to hold and manage assets on behalf of beneficiaries in line with the testator’s wishes.

Why would someone set up a Will Trust?

People use Will Trusts to protect beneficiaries, control how and when assets are distributed, reduce inheritance tax exposure, prevent large lump-sum payments, and safeguard vulnerable or young beneficiaries.

Who controls a Will Trust?

The trustees control the trust. They are usually the executors of the Will and are responsible for managing the trust assets, making decisions about distributions, and acting in the best interests of the beneficiaries.

What types of Will Trusts are available?

The most common types are Life Interest Trusts (providing someone with income or use of an asset for life), Discretionary Trusts (giving trustees flexibility over who benefits and when), and Bare Trusts (where beneficiaries are entitled to assets outright, often used for minors).

Can beneficiaries demand money from a Will Trust?

This depends on the type of trust. In a Discretionary Trust, beneficiaries cannot demand payments as trustees decide if and when they benefit. In a Bare Trust, beneficiaries are entitled to the assets once they reach the specified age.

Examples

Example A

Protecting a surviving spouse

John wants to ensure his wife can remain in their home for the rest of her life but ultimately wants the property to pass to his children from a previous marriage. He uses a Life Interest Trust in his Will, giving his wife the right to live in the property for life, with the house passing to his children when she dies.

Example B

Providing for a vulnerable beneficiary

David has an adult son who has learning difficulties and receives means-tested benefits. Leaving money to him outright could affect his entitlements and could leave David vulnerable to financial exploitation. David sets up a Discretionary Trust, allowing trustees to provide financial support without compromising his son’s benefit eligibility.