Trusts in wills: A good way to ring-fence your assets for beneficiaries

An oft-quoted statement we hear is “I only need a simple will”. Upon further discussions with clients, it may transpire that they have been married more than once or have a child or children from different relationships.

A recent article in The Times Money reported on two children who had ‘lost out’ on their inheritance of £300,000 following their father’s death. This occurred because their father had left everything in his will outright to his wife (his children’s stepmother). Subsequently, the surviving wife changed her will to leave her entire estate (which included her husband’s assets) to her own children.

Ultimately, the two children were left with no inheritance from their father’s estate. To prevent this scenario, there are ways of structuring your will. One way to ring-fence assets for beneficiaries is to include a trust in your will. There are different types of trust that can be included in your will, but the most common type is referred to as a Life Interest Trust.

A Life Interest Trust can be established in your will to provide your chosen beneficiaries with the right to receive income from the trust. Such a right is usually given for the beneficiary’s lifetime. It  often involves the right to reside in a property for a defined period, but can also include any number of savings and/or investments held by you which form part of your estate. When the ‘life tenant’ (i.e. the beneficiary of the trust) passes away, the trust fund is usually left to the other named beneficiaries in the will trust, often referred to as the ‘residuary beneficiaries’.

The life tenant is not entitled to any capital unless this right is expressly given in the will trust. Where a property is held in the trust, the life tenant will be entitled to the rental income produced from it or, more usually, they will live in the property if they wish to do so. It is often the case that a ‘flexible’ Life Interest Trust is recommended whereby the trustees have the power to override the Life Interest Trust for the benefit of a class of chosen beneficiaries. This provides maximum flexibility for the appointed trustees.

Reasons for including a trust in your will are not just limited to those in second marriages or with children from previous relationships. For example:

• You may be concerned about your spouse remarrying after your death.
• You may wish to provide for your spouse after your death, but you would like them to continue living in the ‘matrimonial home’ during their lifetime whilst protecting your interest in the home for your own children.
• You may have concerns about care fees. If your estate is held on trust, it may be disregarded in terms of the assessment for care home fees and funding.

A consideration for business owners is that they may wish to keep the family business within the family rather than for this to be diluted to non-family members. Business interests such as shares, can be held on trust to protect such assets.

As the life tenant under the will is only entitled to income from the trust or to reside in the property (if applicable) for their lifetime, the remainder of the trust fund will be utilised for the benefit of your chosen residuary beneficiaries i.e. your children. Therefore, including a trust in your will when it is drafted can provide a solution to ensure your assets end up with the correct beneficiaries.

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Siân Devereux-Renny is a private client executive in our Legal 500-rated wills, trusts & probate team. Siân mainly assists clients with the administration of estates, preparation of wills, inheritance tax planning and lasting powers of attorney.