What is a Will Trust?

Our trust experts explore what a “Will Trust” is, the advantages and disadvantages, who can benefit, and how to set one up.

What is a Will Trust?

A “Will Trust” is a trust which is created by a person’s Will.  The terms of the Trust are stated in the Will, and the trust only comes into existence upon their death.

What are the different types of Will trusts?

There can be many types of "Will Trust”, which have different purposes.   Some common types of Will trust are:

• Life Interest Trust — A trust that provides an interest for one beneficiary during their lifetime but, after their death, the assets in the trust pass to someone else.
• Discretionary Trust — Assets held in a discretionary trust do not belong to any particular beneficiary. Instead, the trustees of the trust have discretion to determine who benefits from the trust, when and how.  The trustees may be guided by a “Letter of Wishes” prepared by the deceased, which sets out non-binding wishes about how they would like the trustees to exercise their discretion.  
• Vulnerable Beneficiary Trust (also known as a ‘Disabled Persons’ Trust) — A trust to provide primarily for a beneficiary who is disabled or is vulnerable. This type of trust may attract special tax treatment if certain criteria are met.
• Bare Trust for minor children or young persons — A trust to hold funds until a beneficiary reaches a certain age, for example 18 or 25.

The benefits of a Will trust

An important benefit of using a Will trust (as opposed to an outright gift to a beneficiary) is that the trustees usually retain control of the funds.  This can be useful where a beneficiary is not able to manage money for themselves, for example due to young age, incapacity, vulnerability or financial immaturity.

A Life Interest Trust can be a way of ensuring that one beneficiary is provided with an income (or a home to live in) for life, but the capital of the estate will ultimately pass to someone else.  A common situation where this type of trust can be effective is where a married couple have children from a previous relationship. They may want to ensure that the surviving spouse is provided with a home for the rest of their life, but that on the death of their spouse, the capital value of that property is to pass to their respective children.

A Will trust can last for up to 125 years after the date of death, which means it has the potential to provide flexible planning structure which can be used to benefit multiple generations of the same family.

The disadvantages of a Will trust

Will trusts carry an element of complexity and a requirement for ongoing administration. The trustees of a Will trust must ensure the trust is registered with HMRC’s “Trust Registration Service” and that the record is kept up to date.  Depending on the type of trust and the applicable tax regime, there may also be obligation on the trustees to file annual tax returns prepare annual trust accounts.

Prudent trustees should hold regular trustee meetings, usually at least once per year. Trustees act in a ‘fiduciary capacity’, meaning that they owe a duty to manage the trust’s assets in the best interests of the beneficiaries.  Trustees cannot treat trust funds as they would their own money as they are ultimately accountable to the beneficiaries. The choice of trustees is therefore critically important.  There may also be a legal obligation for trustees to take investment advice and to keep investment performance under review.

Who can benefit from a Will trust?

Depending on the type of trust implemented, there could be various beneficiaries and they may benefit in different ways.  You can generally include  individuals and/or charities as the beneficiaries of a Will trust.  Our specialists can provide bespoke advice based on the circumstances of your chosen beneficiaries.

How to Set up a Will trust

A Will trust is set up in your Will.  A Will is prepared during your lifetime, but the trust will not come into existence until after your death.  When planning for the future, it is imperative to consider the present and future potential needs and circumstances of your chosen beneficiaries to determine whether a Will trust is appropriate and, if so, what type of trust structure would be best to meet your requirements.

If you need advice regarding Will trusts or what might be a suitable structure for you, please contact one of our expert Wills and Trusts solicitors.