A recent article reported that law firms are seeing an increase in the use of trust clauses in Wills, demonstrating that testators (the people making Wills) have an increasing desire to control when and how an inheritance is paid out.
In years past, there may have been opportunities to use trusts within Wills for tax efficiency and/or saving. Those benefits have largely dropped away now but trusts still play a valuable role in protecting vulnerable beneficiaries, or protecting assets from spendthrift beneficiaries or their spouses.
Using a trust in a Will to pass on an inheritance will mean that the intended beneficiary does not have full control of the capital or the income from the assets. The fund is controlled by Trustees, who are duty-bound to follow the terms of the trust. The trust might provide that a certain beneficiary has income during their lifetime, and after their death the capital passes to other beneficiaries. It might state that a beneficiary is only to receive the inheritance on reaching a certain age, or on the happening of a certain event. Or the trust might be completely flexible with a pool of possible beneficiaries and the Trustees have full control over who receives what, how they receive it and when they receive it.
Here are some of the common situations in which we would discuss the benefits of using a trust with a client :
- The client has a vulnerable child and the client does not wish the child to have control or management of the inheritance. This vulnerability might simply be due to a very young age, or the child may have a disability or face challenges which mean they would not be able to cope with managing a large sum of money. Using a trust might also help protect that beneficiary’s ability to continue receiving means-tested benefits or care. We have also advised clients who have children with a drug or alcohol dependency on the use of trusts in their Wills – the funds are still available to help support the child in the future, but the child does not have the temptation of direct access to a large amount of money.
- A couple may wish to protect assets in their estate from the possibility of the survivor remarrying or changing their Will in the future. If the survivor of a couple were to remarry, any Will they had at the time would be automatically revoked. Many people are not aware of this and it may result in a change to the way their estate is inherited which they did not intend. By using trusts in each of their Wills, a couple can ensure that at least part of their overall estates (the amount will depend on how the couple own their assets between them) is protected for their intended beneficiaries, should the survivor of them remarry or have a change in circumstances.
- A couple instructing us may be in a second or third marriage, and there may be children from earlier marriages and relationships who need to be considered and protected. We are seeing a rise in blended families and more complicated family arrangements in those who come to us for advice on Wills. The use of trusts in the parents’ Wills can help to make sure that the survivor of them has access to the funds that they need after the first death, and also that these arrangements cannot later be changed to effectively disinherit step-children from previous relationships.
- Finally we also see families where there is a significant level of wealth being passed down to children. The parents feel it is important that this is not released to their children in one payment – there may be concerns that the money might immediately be spent, or run down within a short period of time, effectively wasting the effort and work the parents have put into building up their estate. Or the parents may be concerned that there is an unsuitable in-law or partner in the background and they want to ensure the funds are used only for their children and grandchildren. A trust in this situation can again help to manage and control when and how funds are released – although the trust itself is likely to be flexible in nature, the parents can leave guidance and advice for the Trustees to help them in their decision-making.
It is not a surprise that we are seeing a rise in the use of trusts in Wills – certainly we are seeing a rise in instructions from parents supporting children with vulnerabilities and difficulties, or simply wanting to make sure, as far as they can, that an inheritance is valued and made use of properly and sensibly. One final point to consider if you are thinking of seeking advice about trusts in your Wills is who you would want to appoint as your Trustees. This is a key responsibility – Trustees are the people you are tasking to manage and look after your estate for the benefit of your loved ones. They should be reliable individuals who understand their duties and can be trusted to act in accordance with the trust terms, and who will take into consideration any guidance you may leave for them.
If you are considering using a trust arrangement in your Will or any of the scenarios outlined above apply to you please contact Kathryn Caple, Head of Wills and Probate at Else Solicitors, on 01283 526230 or kathryn.caple@elselaw.co.uk.