Benefits of a Living Trust vs a Will

Estate planning is a crucial aspect of safeguarding your assets for your loved ones to enjoy after you die. However, deciding how to protect your belongings can be complicated, especially when there are a number of options available. In this brief guide, we explain two of the main options – Living Trusts and Wills.

When it comes to protecting your family’s future, understanding the nuances between a Living Trust and a Will is vitally important. Each offers its own benefits, meaning you need to be well-informed about both in order to make decisions that best fit your wishes and circumstances.

In this guide, we will explain what a Living Trust is, the differences between a Trust and a Will, and the things to consider before setting one up.  If you have any questions we have not answered regarding Living Trusts and Wills, our expert Wills, Trusts & Probate solicitors are happy to speak to you regarding your query and provide the legal services you need. You can contact us by completing the enquiry form below or by calling 0151 666 9090.

What Is a Living Trust?

A Living Trust, often referred to simply as a "Trust", is a legal entity created to hold ownership of an individual’s assets during their lifetime. The person who sets up a Trust is called the “settlor”.

Once assets are placed in the Trust, they are managed by a "trustee" for the benefit of the Trust’s beneficiaries. The settlor can act as the trustee, allowing them to retain control over their assets during their lifetime, or they can appoint one or more other people to serve in this role.

The assets within the Trust will be distributed after the settlor’s death, or at a specified time the settlor chooses when the Trust is set up. A Trust is a separate legal entity, meaning that there can be tax savings and other benefits when transferring assets into its control.

Generally speaking, Trusts are established to provide legal protection for the settlor’s assets, to ensure those assets are distributed according to their wishes. This can save time, reduce paperwork, and in some cases, avoid or reduce the estate’s Inheritance Tax liability. However, there are many different trust structures available and it is important to carefully consider the rules and tax implications of your estate-planning decisions concerning trusts.

What Is a Will?

A Will, often referred to as a "last will and testament" is a legal document that expresses an individual’s wishes regarding the distribution of their assets and the care of any minor children after their death.

In this document, the person writing the will, known as the "testator", can specify how their property and personal belongings should be distributed among designated beneficiaries, which may include their children, other friends and family, or charitable organisations.

Additionally, within a Will, the testator will appoint one or more executors, who are responsible for carrying out the directives and managing the estate until its final distribution.

What Is the Difference Between a Will and a Trust?

Both Wills and Trusts are essential estate-planning tools, but they serve distinct purposes and come with their own sets of advantages, disadvantages and considerations. Here is a breakdown of the primary differences between the two:

Nature and Purpose:

Will: A Will is a legal document that details how you would like your assets to be distributed after your death. It can also specify other things, like guardianship provisions for children and funeral arrangements.

Trust: A Trust, on the other hand, is a legal entity to which you transfer ownership of your assets. It is set up to hold and manage those assets for the benefit of specific individuals, either during your lifetime or after. It can allow you more control over how you provide for your beneficiaries - for example, enabling you to hold their inheritance in the Trust until they turn 18.

Establishment and Activation:

Will: A Will becomes effective only after your death. Until then, you can modify it as often as you want.

Trust: Most Trusts (particularly Living Trusts) become effective as soon as they are created and assets are transferred into them. Making alterations may involve a more complicated legal process.

Probate:

Will: Wills typically go through probate, a legal process wherein the court oversees the distribution of assets. This can sometimes be time-consuming and costly.

Trust: One of the primary advantages of Trusts, especially living trusts, is that they avoid probate. As a result, assets within a trust can often be distributed more quickly than those solely governed by a Will.

Privacy:

Will: Because it goes through the probate process , a Will becomes a public document, open to inspection.

Trust: Trusts offer more privacy, as they do not need to be filed with the court and typically remain confidential.

Control:

Will: Wills offer the testator a direct say on the distribution of their assets, but do not provide extended control over how the beneficiary uses them.

Trust: Trusts provide extended control over assets, allowing you to set conditions for a beneficiary’s entitlement. This might be particularly useful if you have reservations about the beneficiary’s ability to manage their inheritance, if beneficiaries are under the age of 18, or if you want to name beneficiaries who do not yet exist - such as any future grandchildren.

Cost and Complexity:

Will: Wills are generally simpler and less expensive to draft than a Trust.

Trust: Trusts often require professional help to set up as they are more complex, although they can save money in the long run by avoiding probate fees and, in some cases, lowering the estate taxes your beneficiaries need to pay.

Tax Implications:

Will: Wills do not provide mechanisms to minimise Inheritance Tax.

Trust: Certain types of Trusts can be structured to reduce the estate tax burden, potentially resulting in significant tax savings. However, assets held in a Trust may be subject to Income Tax, Capital Gains Tax and other liabilities in certain scenarios, so it is important to fully investigate this before establishing a trust.

Flexibility:

Will: A will can be changed or updated relatively easily during the lifetime of the testator.

Trust: The flexibility of a Trust varies. Revocable trusts can be altered, but irrevocable trusts, once established, generally cannot be changed without the consent of the beneficiary.

In short, while both Wills and Trusts are instruments to protect assets, they do so in different ways, with different levels of control, privacy, and cost implications. The best choice for a particular scenario often depends on the individual’s specific needs, the size and nature of their estate, and their long-term financial planning objectives. As such, it can be useful to discuss your estate planning options and needs with an expert Trusts and Probate solicitor, to ensure you find the best route forward for you.

Benefits of a Living Trust vs a Will

While both legal processes have their merits, there are particular advantages associated with each. We have touched on many of these above, but here is a brief outline:

Wills

Trusts

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Can You Have Both A Will And A Living Trust?

Many people choose to incorporate both a Will and a Living Trust into their estate plans for the sake of being comprehensive. Each of these estate-planning tools serves a unique purpose and together, they can offer a holistic approach to ensure all your assets are managed and distributed according to your wishes.

Even if you have a Living Trust, many Trust solicitors recommend also having a “Pour-over Will”. This type of Will ensures that any assets not included in or transferred to the Living Trust at the time of your death will be "poured over" into the Will and distributed according to its terms.

Using both tools can help ensure that all your bases are covered. While the Living Trust can deal with most of your major assets, the Will can address any assets outside the trust and ensure all of your plans for your estate are taken into account.

While it is entirely possible and often beneficial to have both a Will and a Living Trust, the decision should be based on individual needs and circumstances. Consulting with an experienced Wills, Trusts and Probate solicitor can provide clarity on the best approach for your specific situation.

Things To Consider When Making A Trust

The assets you have and where to transfer them are not the only considerations when thinking about the creation of a Trust. You will need to consider many aspects of estate planning, including ensuring your financial and personal goals are met during your lifetime and beyond. The Trust process can be complex, so before making a decision, it is vital to consider several factors.

You should consider the following:

• Purpose of the Trust – Is the Trust mainly being created for asset protection, to avoid potential probate, or to minimise your potential Inheritance Tax liability?
• Type of Trust – There are a number of types of Trust that may be better suited to your individual needs than others, including Discretionary Trusts, Bare Trusts and Interest In Possession Trusts. Understanding which is best for your needs is crucial.
• Choosing Trustees – Trustees have arguably the most important role in a Trust. Choosing a Trustee that can manage the Trust with your best wishes in mind is vital. This might be a close friend whom you trust, or a professional Trustee who can act as a neutral third party in making decisions.
• Duration of the Trust – You will need to consider how long the Trust should last. Should it distribute assets soon after your death, or would you prefer it to last multiple generations?
• Reviews and Updates – If you are expecting various changes in circumstances within your family, Wills are much easier to review and update over time when compared to Trusts.
• Trust Registration – Trusts must be registered with the government Trust Registration Service, which can add to the administrative burden.

Creating a Trust that precisely reflects your intentions and complies with legal requirements requires careful thought, which is why we would always recommend seeking legal assistance before making a decision.

How can Percy Hughes & Roberts help?

Estate planning can seem daunting at first, but making informed decisions today can ensure your loved ones are looked after long after you are gone. Whether you choose a Will, a Trust, or a combination of both, understanding their nuances is imperative.

Both Wills and Trusts can serve crucial roles in safeguarding your assets and upholding your wishes. Percy Hughes & Roberts Solicitors can offer tailored advice based on your unique situation to ensure you have peace of mind.

If you require legal advice in relation to setting up a Living Trust, protecting your estate, or need assistance with anything else to do with wills, trusts and probate, Percy Hughes & Roberts can help. If you would like to contact one of our expert wills, trusts and probate solicitors you can do so by calling 0151 666 9090 or by completing the “Get in touch” form on this site.