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.