Why do I need a trust if I have a will?

Why do I need a trust if I have a will?

  • A will allows you to give your estate away when you die.
  • Trusts separate the legal and beneficial ownership of assets.
  • Combined, will based trusts, allow you to protect those you care for very effectively.

 

The functions of trusts and wills are fundamentally different in nature.

A will directs assets, which form part of your estate, to named beneficiaries, when you die.

Your ‘estate’ includes everything that you both legally and beneficially own. In broad terms, this means everything that is both documented as belonging to you, and which you are entitled to enjoy.

Examples of items that you might so own are: houses, money, cars etc.

Gifts in your will might include wording such as “I give any car which belongs to me at the time of my death, to my son, David.” The effect of this direction is self-evident. Items such as your car may be yours both legally (the car is in your name) and beneficially (you are free to drive the car).

In explaining the function of trusts, it is useful to look at things to which you have a relationship, but which do not form part of your estate for the purposes of a will. Such items might include a pension, or money which you hold on trust for someone else.

These items highlight the power of a trust to separate legal and beneficial ownership. In the case of your pension, it is legally owned by the pension’s trustee. You, however, are entitled to benefit from the pension. The beneficial rights sit with you.

In the case of money held, by you, on trust for someone else. The money might rest in your bank account i.e. legal ownership might reside with you, but you owe an obligation to those for whom you hold it on trust, to apply it only to their benefit. Beneficial rights sit with them.

Trusts and wills converge in ‘will based trusts’. Will based trusts are legal instruments written into wills, which trigger the creation of a trust on the death of the testator (the person making the will). These trusts, once created, are capable of receiving gifts, directed into them by your will.

They are usually used, where a testator feels them protective of the mid/long term interests of those he/she wishes to care for through their will.

The two examples below give a brief overview of how they achieve this protective effect.

Example 1. Mr and Mrs Smith are a couple in their thirties, they’ve two children and each own half of the home in which they live. They are both concerned that, should they die, their spouse will remarry and their respective interests in the house will be lost to a new partner or family. To protect against this, rather than leaving their interests in the house to one another, they leave legal ownership of the house to a trust (a ‘Property Protective Trust’). This trust allows their spouse to live in and benefit from the house whilst still alive, but ensures its passage to their children on second death.

Example 2. Mr Jones is wealthy and widowed. He wishes his only son, James, to benefit from his estate on his death, however, he is concerned that his son James’ marriage has deteriorated and, whilst no irrevocable steps have been taken towards its dissolution, Mr Jones, does not wish his hard-earned fortune lost, should rapacious divorce lawyers become involved in the future. With this in mind, Mr Jones leaves his estate to a ‘discretionary trust’, naming his son a beneficiary. This instrument places legal ownership of the estate with named trustees who can be given guidance to benefit James, whilst having an eye to his financial protection should divorce take place.

Trusts are used a great deal in wills to look after the slightly longer terms interests of those you care about. Confidence Wills are experts on will based trusts. If you’d like to learn more, please contact us now by going to www.confidencewills.co.uk and booking a free consultation.