What Is a Trust Fund in a Will?

A trust fund allows you to protect and manage assets for your loved ones after you are gone. The right trust can restrict beneficiaries' access to assets until they come of age or enable you to provide for beneficiaries who do not yet exist, such as future grandchildren.

For the right estate, a trust fund in a will can be one of the most effective ways to ensure you loved ones are looked after and your wishes are carried out after you are gone. While many people have heard of trust funds, the details of how they work within a will are often less well understood.

Setting up a trust as part of your will can provide valuable protection for your family, particularly if you have young children, vulnerable relatives, or complex family circumstances. In this guide, we explain exactly what a trust fund in a will is, how it works, and why you might consider including one as part of your estate planning.

If you have any questions we have not answered, the expert Wills, Trusts & Probate solicitors at Percy Hughes & Roberts 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 Fund in a Will?

A trust in a will is a legal arrangement that takes effect after your death. There are several different types of trust, with different functions - for example a life interest trust can enable a surviving spouse to remain in a family home for their lifetime, but ensure that the couple's children inherit the property upon the survivor's death. A discretionary trust gives trustees (the people who manage the trust) the power to decide when and how to distribute gifts.

With this said, most trusts have key features in common. In general, trust funds allow you to:

• Set aside assets such as money, property, or investments for specific people (your beneficiaries).
• Appoint one or more trusted individuals (trustees) to look after these assets on behalf of your beneficiaries.
• Provide clear instructions in your will about how and when the assets should be managed or distributed.

This can help ensure your loved ones are provided for in the way you intend, offering extra protection and flexibility as part of your estate planning. The terms of a trust are written into a trust document, which can be the will itself, outlining the nature of the trust assets and explains how much control the trustees have to manage assets, gifts and income.

How Does a Trust Fund in a Will Work?

When you include a trust fund in your will, it only comes into effect after your death. The assets you set aside - such as money or property - are managed by your chosen trustees, who have a legal obligation to act according to your wishes.

Typically, the process works like so:

• After your death, your trustees take control of the assets placed in trust.
• The trustees manage or distribute those assets for the benefit of your chosen beneficiaries, following any instructions you set out in your will.

This arrangement allows you to control how and when your beneficiaries receive their inheritance, providing extra security and flexibility for your loved ones.

When created as part of your last will and testament, the trust will only enter into operation when you die. However, it is possible to create a trust during your lifetime - speak to the wills and trusts solicitors at Percy Hughes & Roberts for advice on whether or not this is a suitable option for your needs.

Once assets are placed into a trust, they become the property of the trust rather than of the estate. Trust assets can be subject to different rules when it comes to taxation and may incur other liabilities, such as Income Tax, that should be considered.

Who Are the Key Parties in a Trust Fund?

There are three main parties involved in a trust fund set up by a will:

• The testator: This is the person who creates the will and decides to include a trust fund as part of their estate planning.
• The trustees: These are the individuals or professionals appointed to manage the trust assets. Their role is to act in the best interests of the beneficiaries and follow the instructions set out in the will.
• The beneficiaries: These are the people or organisations who will benefit from the assets held in the trust. Beneficiaries might receive income, capital, or other benefits, depending on the terms of the trust.

The testator will appoint trustees, and it is important to choose people you can rely on to manage assets carefully and in line with the relevant trust deed. You will also choose the beneficiaries. Even if you choose a discretionary trust structure, the trustees can only distribute gifts to the beneficiaries you have chosen.

Why Set Up a Trust Fund in Your Will?

There are many reasons why people choose to include a trust fund as part of their will. In many cases, a trust offers added protection and flexibility that a straightforward gift in a will cannot provide.

For example, a trust fund can:

• Support young children or vulnerable beneficiaries who are not able to manage an inheritance themselves, or protect it until they come of age.
• Release funds gradually (for example, when beneficiaries reach certain ages), instead of providing a lump sum all at once.
• Protect family assets from risks such as divorce, bankruptcy, or care home fees.

Trusts can also be used to balance the needs of blended families. If you want to provide for a spouse or partner while ensuring that assets eventually pass to your children from a previous relationship, a trust fund can achieve this.

Finally, setting up a trust fund can sometimes offer tax benefits that will help you to make the most of your estate for the people you care about. Overall, including a trust in your will can give you more control and peace of mind about the future if your estate is likely to be complex or high-value.

Types of Trusts You Can Include in a Will

When you create a will, there are several types of trusts you can choose from, depending on your circumstances and goals:

• Bare trusts are often used when leaving assets to young beneficiaries, such as children or grandchildren. The assets are managed by trustees until the beneficiary reaches a specified age - usually 18 - at which point they receive the inheritance outright.
• Life interest trusts can allow someone (often a spouse or partner) to benefit from an asset during their lifetime. For example, you can enable them to live in a property or receive income from investments without owning them. The trust deed will set out that when a certain event is reached, such as that person passing away, the remaining assets are passed on to other beneficiaries as detailed in the trust deed.
• Discretionary trusts provide flexibility by allowing trustees to decide how and when to distribute assets among a group of beneficiaries. This can be useful if you want your trustees to have the ability to support beneficiaries as their needs change over time.
• Trusts for vulnerable or disabled beneficiaries can take on a range of structures, but are designed to provide for loved ones with disabilities or special needs. One advantage is making sure that an inheritance does not affect a person's entitlement to any means-tested benefits.

The right type of trust for your will depends on your wishes, your family situation, and the needs of your beneficiaries. It is always a good idea to seek professional advice to help you choose the most suitable option.

How Are Trust Funds in Wills Taxed?

Trust funds created by a will are subject to a range of tax rules, which can sometimes be complex. The main types of tax to consider are:

• Inheritance Tax: When assets are placed into a trust on your death, Inheritance Tax may apply.
• Income Tax: Any income generated by the assets in the trust, such as rent, interest, or dividends, is usually taxable. The trustees are responsible for paying any Income Tax that is required, although the exact rates and allowances depend on the type of trust.
• Capital Gains Tax: If the trust sells an asset that has increased in value since it was placed in the trust, Capital Gains Tax may be due. Trustees must report and pay this on behalf of the trust.

The tax treatment of trusts can vary depending on the type of trust, the value of the assets involved, and the circumstances of the beneficiaries. Because trust taxation can be complicated, it is always wise to seek professional advice to make the trust as tax-efficient as possible for your family.