You might think that, in order to benefit from a trust, you need to have a large estate or assets that needs to be managed on your death. However, this is a common misconception – Testamentary Trusts in particular can be beneficial in a range of circumstances, and serve a number of purposes. Partner and Head of Legacy Abi Bird breaks down the key information in this article.
What is a Will Trust?
Trusts essentially allow someone, for example, your child, to benefit from assets without being the legal owner. A Will Trust, or Testamentary Trust, forms part of your will and allows you to set aside assets to be managed by a trustee. This will only take affect after your death, unlike other kinds of lifetime trusts. The Trustee will look after the assets on behalf of your beneficiaries, who will receive the benefit of the trust, for example, by living in a property or having cash advancements from the trust used for payment of their education.
What is the difference between a Will and a Testamentary Trust?
The benefit of setting up Testamentary Trust, as opposed to leaving the assets outright to someone in your Will, is that you have more control over how the assets are used. You can set out conditions for how the trustee should manage the assets – for example, allowing someone to receive a set amount of money from your estate per year.
How can I manage my Inheritance Tax liability?
A trust is not necessarily only something high-net-worth clients can benefit from. A Will Trust may be very useful for those with complex family structures, or specific wishes when it comes to who will inherit certain assets, such as the family home. Different types of trust can guarantee things like who will inherit your assets if your surviving partner remarries or changes their initial wishes, for example protecting your children from an earlier marriage, or can ensure that vulnerable people are supported in managing their inheritance.
A Life Interest Trust can be set up, which means the trust assets will belong to the beneficiary for their lifetime, but upon their death, the assets will be passed on in accordance with your wishes.
So, for example, if you have an investment portfolio, and wish for the income and dividends to be used by your surviving spouse, but the capital of the investment portfolio to ultimately be left to your child, you can set up a Life Interest Trust which will ensure your assets will be passed on as per your wishes when your spouse passes away. It is a way of preserving the capital for your children whilst ensuring your surviving spouse can benefit from the asset during their lifetime.
There are also sometimes tax advantages to setting up a Testamentary Trust, although this will depend on your personal circumstances, and it is always best to get personalised advice on tax issues. A trust will also remain off the public record, unlike a Will, which may be preferable for privacy reasons.
If you would like to know if a Trust is right for you, speak to our Legacy team for more information.
Speak to a lawyer — You can reach our Legacy team on 020 3146 6312 or email@example.com
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