What is the Difference between a Will and a Trust?

Wills and trusts are both important ways of giving yourself the peace of mind that your assets will benefit your loved ones in the way you wish.

They can be used in tandem with each other (with a trust being set up within your to be effective on your death) or be totally separate.

A basic difference between Wills and trusts is that a Will makes a gift of a particular asset (such as a house or sum of money) to a beneficiary on death, whereas a trust made in your lifetime transfers ownership of an asset but enabling it to be used to benefit the individual concerned.

Another important difference is that Wills only come into effect following your death while some trusts can operate during your lifetime.

It’s very important to be clear about the specific benefits of Wills and trusts and so we will look in detail at these below.

Wilson Browne has a wealth of experience and expertise in these areas and will be delighted to help you make the right decisions for you and your family.

What is a Will?

A Will is a document in which you set out how you wish your estate (money, property and possessions) to be distributed after your death. While it is common to leave all your assets to your immediate family, a Will gives you the flexibility to make bequests to other people you want to help (such as a friend or carer) or support a favourite charity.

It is very important to make a Will as otherwise your estate will be distributed according to the rules of intestacy. These operate in an inflexible way and will see your assets distributed to immediate family members with the result that you lose all discretion over whom receives an inheritance.

When making a Will you also appoint an executor to have responsibility for distributing your estate after your death and ensuring that your wishes are respected. This can be a family member or friend (including a beneficiary of your will) or a professional expert such as a solicitor.

By making a Will, therefore, you put yourself in control of both how your assets will be distributed after your death and who will carry out this process.

What is a trust?

Setting up a trust (and appointing trustees to manage it) is a way of enabling someone to benefit from an asset without being the legal owner. In this way it is possible for you to influence the way that the asset is used in the future.

Reasons for creating a trust include:

• Ensuring that a family member doesn’t squander their inheritance (e.g. someone who has mental health issues or addiction problems)
• Reducing liabilities for tax and care home fees (e.g. creating a trust can avoid the requirement to pay inheritance tax each time an asset passes down a generation)
• Preventing an asset from being dispersed over future decades (e.g. a property having to be sold as part of a future divorce settlement)

What are the different kinds of trust?

Bare trusts

These are the simplest form of trust and involve the beneficiary having an immediate right to benefit from the capital and income of the asset.
A common example is where a trust is set up for a young person under the age of 18. The trustees will be the legal owner of the assets and can help ensure that funds are used is a responsible way (e.g. to pay for education).

Life interest trusts

A life interest trust entitles an individual to have the use and benefit of an asset during their lifetime but without being able to sell it.

This can be an effective way of safeguarding children’s inheritance; a surviving spouse can continue to live in the family home but cannot sell it and give the proceeds to a new partner.

In another scenario, a couple may each own a 50 per cent share of a property. Should the husband die and leave his half in a trust, this could not be claimed by the local authority to pay for any future care costs the wife may incur – it could then subsequently be passed on to their children and grandchildren.

Discretionary trust

This gives trustees the maximum flexibility over the way that they use the capital and income of the asset.

The main advantage of this is that it enables the trustees to adapt to changing circumstances and ensure funds are directed to where they are most needed.

For example, a trust may be set up to support three children. Over the years a certain sibling may be in greater need of support due to issues such as illness or redundancy. A discretionary trust could give trustees the ability to provide more support to that individual.

This large amount of discretion means it’s very important to make the right choice of trustees as they can have a great influence over the future lives of those benefitting from the trust.

Although it’s common for someone setting up a discretionary trust to provide a Letter of Wishes, there is no legal obligation for the trustees to follow it.

Where can I find out more about Wills and trusts?

At Wilson Browne, we recognise that the issue of inheritance is a very sensitive one that many people feel uncomfortable discussing. Operating at all times with the highest levels of tact and integrity we have a proven track record of using our expertise to help people secure the future of their loved ones.

Wills and trusts can be complex, but our friendly, professional service will help you to make the right decisions for you and your family.

With offices in Corby, Higham Ferrers and Rushden, Kettering, Leicester, Northampton and Wellingborough, we can offer personal advice at a location near you.

We are also happy to make home visits for clients with mobility issues.

Please get in touch by calling 0800 088 6004 or completing our online contact form.