Wills and Trusts are both important ways of ensuring your assets are distributed as per your wishes.
In this blog, we look at the difference between a Will and a Trust and explain why we advise some of our clients to have both.
What is a Will?
A Will is a document that sets out how you would like your assets to be distributed when you die. Assets include money, property and possessions; those with monetary and/or sentimental value. In a Will, you typically leave assets to family members, close friends and charities you support.
What is a Trust?
A Trust is a document that allows you to influence how and/or when a bequeathed asset is used and name trustees who are responsible for ensuring distribution.
There are several types of Trust:
- Bare Trusts are commonly set up for children to use when they are older, for example to buy their first car when they turn 17 or use for their education when they turn 18
- Life Interest Trusts entitle someone to benefit from an asset but not sell it. For example, children would inherit their family home if a Trust prevented a surviving spouse who remarries from selling the property and giving the proceeds to a new partner
- Discretionary Trusts are the most flexible. Trustees determine how the capital is distributed, and they can adapt to changing circumstances. For example, money might be left to two children but one might lose their job or become ill and unable to work. In this case, that person might receive more money than the other as a higher level of support is needed. Although the person setting up the Trust might write a Letter of Wishes, the trustees do not have to follow it if circumstances change
- Interest in possession trusts are when a beneficiary is passed income, for example, a shareholder might put shares in a Trust and the income would go to his wife. When she dies, shares could be passed to children. Although the beneficiaries will receive the income generated by the shares, they do not have the rights that a shareholder would
- Accumulation trusts are when trustees can accumulate income and add it to the Trust’s capital. Income can also be paid out
- Mixed Trusts are a combination of more than one type of Trust, each being treated in accordance to their tax rules
Why do you need a Will?
If you die without a valid Will, your assets are distributed as per the rules of intestacy.
In these cases, the law will determine who inherits what and who can administer the estate. This means that someone who expected to inherit may not, and someone who you or your family feels should not benefit, may be entitled to a share. It also makes probate more costly, stressful and challenging for those you leave behind.
The rules of intestacy do not allow for modern family structures. Unmarried partners and stepchildren will not automatically inherit any part of your estate, including the family home, even if they lived with you for some time.
Why do you need a Trust?
After you die, you may wish for some of your estate to be held on behalf of beneficiaries to be used at a particular time or in a certain way. This is when you would take out a Trust. You appoint trustees to hold the assets and administer them on your behalf when the time comes.
Trusts can help to:
- Ensure a family member doesn’t squander their inheritance
- Reduce tax as a Trust can avoid the need for inheritance tax to be paid every time an asset is passed down
- Reduce care home fees. For example, if a property is owned 50/50 by a husband and wife and one of them dies, leaving their half in a Trust for children or grandchildren will mean the local authority cannot force it to be sold to pay for the remaining spouse’s care home fees
- Ensure children from a previous relationship are taken care of
- Leave some or all of your estate to a vulnerable or disabled person who cannot manage their own affairs
- Quicken the probate process as assets left in a Trust do not need to be transferred in this way
Contact AGR Law for advice on Wills and Trusts
Deciding how to distribute your estate when you die can be a complex matter, not to mention something which is often upsetting to think about.
Our knowledgeable team can offer the best legal advice whilst understanding that making a Will and/or a Trust can be an emotionally charged time, especially if conversations around inheritance have caused tensions in the family.
Give our team a call on 0116 340 0094 or email hello@agrlaw.co.uk to find out how we can help you.