What is a will trust?

A will trust – also known as a testamentary trust – is created within your will to allow you to protect property you hope to pass on to your family.

Trusts are legal entities that allow someone to benefit from an asset without being the legal owner. You create the trust and appoint a person to manage it – the ‘trustee’. The trustee manages the trust on behalf of the ‘beneficiaries’ – those who receive the income of the trust.

Establishing trusts can give you an element of control over assets you wouldn’t have if you gave them away outright. There can also be tax advantages, but that should never be the main reason for setting one up.

In some cases, you could end up paying more tax by putting assets into trust. Trusts can be complicated structures with tax implications, and you should seek legal advice before setting one up.

There are two main types of trust that you might choose to set up: a will trust, created upon your death, or a lifetime trust, which you establish during your lifetime. We explain the pros and cons of both.

Leaving property in a will trust

Unlike a lifetime trust, a will trust is only created once you pass away.

You set up the conditions of the trust in your will and it activates upon your death. Will trusts are mainly used by couples to split ownership of the family home if they own it as ‘tenants in common’. Rather than leaving their share to each other, they each leave it to a trust, which comes into being on the death of the first partner/spouse.

Until recently, will trusts were a common way of saving on inheritance tax (IHT). A couple potentially liable for IHT could split their estate into halves, both below the nil-rate band. However, since 2007 married couples and civil partners have been able to transfer unused IHT allowance to one another. As such, most couples no longer need to make this type of trust for inheritance tax purposes, though it may be used to ring-fence the deceased spouse’s share from care home assessments.

Will trusts and long-term care

If you use a will trust and your partner dies, you as the surviving spouse retain a right to live in the house. If you need to pay for care, only your share of the home’s value will be assessed by the local authority.

The part owned by the trust is not counted. In this way it’s protected from care home costs. Government rules (Charging for Residential Accommodation Guide) suggest that this arrangement will not be contested as ‘deliberate deprivation’, meaning that you have deliberately split your assets to avoid paying high care-home fees.

Should you wish to discuss the use of Trusts in a Will, please contact us on 0845 4900324 or email info@sterlingwills.co.uk