Trusts can be created as part of your Will or during your lifetime to protect your assets or help and assist vulnerable beneficiaries or family members. If you make a trust in your Will, it will only come into effect after your death. However, doing so can provide valuable peace of mind during your lifetime that your wishes will be honoured and assets protected. 

To help you understand further how to use trusts in estate planning and the benefits they may have, we have put together this short guide.

What is a trust?

The first step of understanding how to use trusts in estate planning is to understand more broadly what a trust is. In short, a trust is a legal relationship made by you when placing your assets under the control of a trustee. The trustee’s role is to hold those assets for the benefit of your chosen beneficiary (ies) or for some other charitable purpose of your choosing.  You can also set down further wishes if appropriate. 

Types of trusts

There are different types of trusts you can use in estate planning, depending on the type of assets you wish to protect, the way you wish to protect them, and who you intend to give control of them to. 

The type of trust made in a Will is a testamentary trust. This is a trust written down and included in the Will and can be one of the following:

Bare Trust

A bare trust is a simple type of trust. The trustee holds the asset for the beneficiary who has the legal right to it. 

A bare trust is often used when someone wants to hold, for example, money, for a beneficiary who is too young to legally own the asset themselves (e.g., whilst they are under 18 years old). 

Contingent Trust

A contingent trust is normally where a beneficiary receives their entitlement upon reaching a certain age. This can be specifically mentioned in the Will, such as at 18 or 25. Until the child reaches that age, trustees would look after that asset and it can be used for the beneficiaries’ benefit. 

Interest in Possession Trust 

Also known as a life interest trust, an interest in possession trust can aid estate planning and give a beneficiary the following rights:

• Receive income made from the trust’s assets. These can be things like rent, dividends, or interest. 
• Live in a property owned wholly or partly by the trust until an event triggers the end of the trust, such as the beneficiary passes away, sells their part of the property, or remarries. 

You can also have a combination of the above.  An interest in possession trust is often used for blended families when someone wishes to look after their spouse for their lifetime but pass their capital down to their children.

Discretionary Trust

A discretionary trust is the most flexible type of trust, where no one is entitled to receive anything unless the trustees choose to exercise their discretion. The trustees have discretion in deciding who receives, how much they receive, and when they will receive it. 

A discretionary trust is often used to support vulnerable beneficiaries or persons who may not be able to manage the funds themselves.

What is a Trustee?

For a trust to be used as part of estate planning, trustees must be put in place. Trustees are the individuals who are legally responsible for the assets in your trust, and they must act in the best interest of the beneficiaries and in accordance with your wishes. When choosing a trustee, you must therefore choose someone you trust – it is in the title. 

Why set up a trust?

A trust can be a very useful tool in estate planning. The key reasons why someone may opt for a trust :

• Flexibility 
• Asset Protection 
• Retain some control over when and to whom assets pass
• Protect family assets if your partner remarries after you die
• Provide for grandchildren in case their parents remarry
• Protect assets for young or vulnerable beneficiaries

Thinking that you may wish to set up a trust?

Knowing how to use trusts in estate planning can be tricky, and it is crucial to seek professional legal advice before creating a trust. Whilst trusts can offer valuable protection and flexibility, they do come with a level of administration. It is also important to consider any tax consequences of setting up a trust alongside the ongoing management, and a legal professional will be able to help you through this process.

Here at Kitson Boyce, our Devon-based private client lawyers have the knowledge and experience required to help you look after your assets in the way that works best for you. If you are considering putting in place a trust as part of your estate planning, we will be able to guide you through the process to ensure a suitable solution, both now and in the future. 

For more information, please contact us online, via email at [email protected], or call us directly on 01803 202020 to speak to one of our private client lawyers about your requirements.