How to Set Up a Trust in a Will

Creating a trust in a will is a practical way to ensure your physical and financial assets are protected and distributed according to your wishes after your death. This guide explains what a trust in a will is, the benefits in terms of asset protection, and how to set one up effectively to safeguard your loved ones and your estate.

Establishing a trust in a will is a valuable tool, as assets held by the trust do not count towards the value of your estate for Inheritance Tax purposes, subject to certain rules, but will still be managed and distributed in line with your wishes after you die, provided your trust deed is clear and well-written. Trusts offer a level of control and flexibility that traditional inheritance arrangements do not, which makes them a popular choice for individuals with specific goals or complex family circumstances to account for.

In this guide, the team at Percy Hughes & Roberts Solicitors explores the different types of trusts and the key steps to setting one up effectively. If you have any questions we have not answered, 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 Trust in a Will?

A trust is a legal arrangement in which specific portions of your estate are set aside and managed by trustees after you die. This allows you to leave instructions for how your estate assets should be managed and distributed after your death. Trustees hold trust funds and assets and may be given instructions on when to distribute them, or the discretion to make their own decisions. However, they can only give assets to beneficiaries you have named and are responsible for acting in the best interests of the beneficiaries you have chosen at all times.

Certain trust structures provide a level of oversight and protection that cannot always be achieved through a straightforward inheritance structure. They can enable you to specify that beneficiaries should only receive gifts when they come of age or reach particular milestones, for example.

If you want to set up a trust, there are three key roles to understand and assign:

• Settlor: The person who creates the trust by specifying its terms in their will.
• Trustees: The individuals or organisations appointed to manage the trust in accordance with the settlor’s wishes. They will handle any ongoing administration responsibilities, and may need to calculate Income Tax based on income generated by the trust or other liabilities.
• Beneficiaries: Those who will benefit from the trust, either by receiving income, property, or other assets.

As the settlor, it is important to think about who will act as trustees and what you want to achieve for your beneficiaries before deciding to create a trust, as this will determine what type of structure you need. Before putting assets into a trust, the legal and tax implications should be carefully considered.

Why Consider a Trust in a Will?

Trusts in wills can address a range of personal and financial circumstances, such as protecting assets for the settlor's children, supporting vulnerable beneficiaries, or preserving wealth across generations. They offer the flexibility to outline how and when beneficiaries can access the assets, so you can be certain that your estate will be used and distributed exactly as you intended.

Here are a few key scenarios where you may consider having a trust created as part of the estate planning process:

• Protecting vulnerable beneficiaries: A trust can safeguard assets for children, individuals with disabilities, or any other vulnerable person who is unable to manage finances for themselves.
• Managing complex family situations: Trusts can be a way to balance the needs of children from previous relationships and those of a surviving spouse or partner. For example, a life interest trust enables you to assign someone as the life tenant of a property (such as the family home) without them owning it. When they die, the property passes to your original beneficiaries as intended.
• Controlling asset distribution: You can specify how and when beneficiaries receive their inheritance, such as at a certain age or milestone.
• Preserving assets for future generations: A trust can protect wealth from risks like divorces, creditors, or care home fees
• Providing flexibility for changing circumstances: Under some trust structures, trustees can adjust distributions to meet beneficiaries’ changing needs or circumstances.

By incorporating a trust in your will, you can protect your loved ones, leave instructions for the responsible management of your assets, and have peace of mind that your wishes will be honoured. However, this requires you to understand the implications of trust law and find the right structure for your needs.

Types of Trusts in Wills

There are several types of trusts that can be included in a will, each of which is designed to meet specific needs and apply in particular circumstances. Understanding these options can help you choose the right trust for your estate planning goals.

• Bare Trusts
  A simple trust where the beneficiary is entitled to both the income and capital at a specified age, usually 18. This type of trust is commonly used to manage assets for children until they come of age.
• Discretionary Trusts
  Trustees have the flexibility to decide how and when beneficiaries receive income or capital. This is an ideal structure for managing assets for vulnerable beneficiaries or adapting to unforeseen circumstances, or to protect entitlement to means tested benefits.
• Interest in Possession Trusts
  This type of trust provides a beneficiary with the right to receive income or live in a property during their lifetime, while preserving the capital for other beneficiaries. This approach is often used to support a surviving spouse while protecting assets for children.
• Property Trusts
  These are specifically designed to protect the value of a property or share of a property. Often used to ensure a spouse or partner can live in the property after your death, while preserving its value for other beneficiaries, such as children.
• Flexible Life Interest Trusts
  Similar to property trusts, these allow a wider range of assets, such as investments, to be included. This type of trust provides income or benefits to a nominated person while protecting the capital for future beneficiaries, who will become the legal owners when the nominated person dies.

Each trust type offers distinct benefits and considerations. Choosing the right one will depend on your goals, the needs of your beneficiaries, and the nature of your assets.

How to Set Up a Trust in a Will

Setting up a trust in a will requires careful planning, and you should work with a solicitor to create the most secure structure possible. Below are the key steps involved in creating a trust, but bear in mind that it is important to work with a legal professional to make sure the terms are legally binding, rather than trying to approach this by yourself.

1: Identify the Purpose of the Trust and Choose the Type

The first step is to decide why you need a trust and what you want it to achieve. A clear goal will guide the structure and terms of your trust. Then, choose the trust structure that best suits your needs. Speak to a solicitor for guidance on trust structures that might suit your ambitions.

2: Choose Your Trustees

Selecting the right trustees is critical, as they will be responsible for managing the trust. Trustees should be reliable, financially capable, and willing to take on this responsibility. It is common to appoint at least two trustees for accountability and continuity, and you may also consider appointing a professional trustee, such as a solicitor, for complex trusts. Depending on the type of trust, your trustees may be taking on a long-term responsibility, so bear this in mind when choosing people to appoint, and when discussing the role with them.

3: Name Your Beneficiaries

A trust deed or document should clearly identify who will benefit from the trust, so you will need to prepare a list in advance. The list could include specific individuals (e.g., children or grandchildren), groups (e.g., “all my descendants”), or organisations such as charities. The best approach will depend on your overall estate planning goals.

4: Draft the Trust Terms

Work with a solicitor to draft the terms of the trust and include them in your will. The trust terms should outline:

• The roles and powers of the trustees.
• The rights of the beneficiaries.
• Any conditions or restrictions on the trust assets.

You may also want to write a letter of wishes to guide the trustees on how you would like them to manage the trust. Trusts may be governed by different rules depending on the documents by which they are established, so it is important to take care at this stage.

5: List the Trust Assets

Identify the assets you want to place in the trust, such as property, investments, or savings. The trustees should know exactly what they are managing and whom it is intended for. Rather than putting specific assets into a trust, you can also specify that your residuary estate should be included, which means everything that is left after specific gifts have been assigned and after the payment of debts, funeral and testamentary expenses.

6: Seek Professional Advice

The team at Percy Hughes & Roberts will draw up the relevant trust documentation to establish the structure in your will, and help you to understand the potential implications. Working with a solicitor means your trust can be legally compliant and tailored to your specific needs. They can help you navigate complex regulations and avoid potential issues. It will also provide clarity for your beneficiaries and the executor who will need to manage your estate.

When Should a Trust in a Will Be Considered?

A trust in a will is beneficial in many situations, especially when you need to protect assets or control their distribution. They can be particularly valuable if you wish to:

• Provide for young or vulnerable beneficiaries.
• Manage complex family structures, such as second marriages.
• Protect assets from risks like creditors or divorce.
• Provide for a surviving spouse or partner.
• Give money to a charitable cause.
• Preserve wealth for future generations.
• Manage a complicated or high-value estate.

Trusts are flexible tools that can safeguard your estate, but there may be other provisions you can put into your will that serve your desired function. The team at Percy Hughes & Roberts can help you to determine whether a trust is a necessary part of your will and, if so, assist you in setting it up.