Many Wills may have a Trust written into them but there is often confusion surrounding the reasons why it has been included and what it actually means. Jean Massih, Legal Assistant at Kings Court Trust, explains…
I am often asked by families about Trusts in Wills. It is important to remember that although the Trust in the Will is treated as coming into effect when a person dies, there may be some decisions for the named Trustees to make and it may be necessary for legal documents to be drafted in order to set up the Trust appropriately.
A Trust that is contained in a Will comes into effect when the Executors who have administered the estate transfer the assets (such as money or land) into the hands of Trustees. The Trustees are the legal owners of these assets but are not entitled to any benefits of the Trust, unless they are named as a beneficiary of the Trust. The Trustees are obliged to hold and manage the property for the benefit of a person or a group of people, who are called beneficiaries.
Trustees who are named in a Will do however have the option to take up their role as Trustee or they can choose to retire their duty as Trustee and the power of appointing a new Trustee lies with them, in most instances. In Trusts involving Land at least two Trustees must be appointed.
There are several types of Trusts but the most commonly used include:
Trusts for minors
Many Wills contain legacies for minors, which can be in the form of an outright gift or a contingent gift, for example dependent on the minor reaching a certain age. In either case, since minors cannot hold monies in their own right, it will be necessary for someone to manage the monies until the minor is entitled to the gift outright and is able to legally hold the money themselves.
Here, the Trustees have discretion over to whom and when payments should be made, from a class of beneficiaries. Trustees are usually given discretion as to the investment of the fund. This type of fund may or may not be allowed to accumulate income. Discretionary Trusts are often used when there are concerns that a beneficiary may act irresponsibly if given assets outright to him or her.
Some Wills may also contain a Nil Rate Band Discretionary Trust; a Trust which was widely used before October 2007 to best mitigate Inheritance Tax (IHT) between spouses. However, changes to the law applying to IHT implemented in October 2007 mean we no longer need to use Nil Rate Band Discretionary Trusts in Wills for IHT purposes between spouses. Nil Rate Band Discretionary Trusts can still be very effective in other circumstances eg. asset protection and protecting vulnerable beneficiaries from receiving large sums outright.
Interest in Possession (IIP) Trust
Here, the beneficiary has a right to the income but not the capital of the Trust monies invested. The Capital is then given outright to another beneficiary upon the occurrence of a specified event, most commonly upon death of that beneficiary. For example, a beneficiary has a right to occupy a property for their lifetime and to enjoy any income arising from the property (if the property is rented out). However, upon their death the property (capital and income) is left to someone else.
At Kings Court Trust, we frequently deal with the setting up of Trusts post-death, either as part of the estate administration process or on a standalone basis. Please feel free to call us for further advice.