Will trusts can be used for all sorts of reasons. Put simply, a will trust is a ‘gift with strings’, or conditions. This is as opposed to an outright or ‘absolute gift’ – ie an immediate gift without strings or conditions. It falls to the appointed trustees in your will to look after those assets during the period of the trust.
There are 3 commonly used trusts used in wills:-
- Bare trust
- Interest in possession trust (often called life interest trusts)
- Discretionary trust
Bare Will Trusts
These will often arise without it being obvious that there is a trust (or potential for). A common example is where there are gifts to ‘minors’ (ie people under 18).
So for example, this is an absolute gift:-
“I GIVE £10,000 (ten thousand pounds) to my son JOE BLOGGS”
Assuming Joe is over 18 at the point at which the testator (the person who made the will) dies, then that is an absolute gift and no trust arises. However, if Joe is not 18, the gift can not be given to him until he reaches majority. The trustees must therefore hold it on a bare trust until his 18th birthday. Once that condition is met (he reaches majority), the trust ends and the money is paid to him.
Interest in Possession Will Trusts
Interest in possession trusts allow the beneficiary to ‘enjoy’ an asset for a set period (often the duration of their lifetime). From this springs the phrase ‘life interest trust’. The beneficiary is known as the ‘life tenant’. When the life tenant is no longer entitled to ‘enjoy’ the asset, the trust will define who then takes things ‘absolutely’. These are called the remaindermen.
‘Enjoying’ an asset means using it without owning it. So for example houses are often put into interest in possession will trusts permitting someone to live there for their lifetime (or some other trigger event), at which point the house is often sold and the proceeds distributed to the remaindermen.
The house example (above) is often used by married couples with blended families. So, the surviving spouse is permitted to remain in the house, and then on their death, the house is sold and divided in specified amounts to the remaindermen (in this example perhaps children from both marriages?).
Discretionary Will Trusts
A discretionary trust leaves the trustees of your estate (or a share of it) to gift whatever and whenever they see fit. Typically, there will be a list of potential beneficiaries (known as a ‘class of beneficiaries’) who stand to benefit.
Discretionary trusts are often used to protect assets. So for example, if the child of a testator (the person who made the will) is bankrupt, or going through a divorce, a portion of the estate may be placed on a discretionary trust so that the assets in it cannot be attacked by the Trustee in Bankruptcy or a disgruntled spouse.
It is helpful to leave a letter of wishes to guide your trustees as to your broad wishes. However, it is imperative that that letter of wishes does NOT seek to bind the trustees (and in doing so remove the discretionary status of the trust).