How to Set Up a Trust

How to set up a Trust for beneficiaries in Your Will

Planning for the future is crucial, especially when it comes to safeguarding your family’s inheritance. One effective way to ensure your assets are distributed according to your wishes is by setting up a trust in your Will. 

This guide will walk you through the different types of trusts you can establish and the key considerations to keep in mind.

What is a trust?

A trust is a legal setup where your assets, like property, are managed by someone else (the trustee) for the people you want to benefit (the beneficiaries) in your Will. This helps ensure that your assets go to the right people and not to anyone you don’t want to inherit them.

Life is unpredictable, and circumstances can change. Whether it’s to protect your inheritance from unforeseen events or to address specific family dynamics, incorporating a trust into your Will can provide peace of mind.

What are the different types of trusts?

There are two main types of trust you can use in your Will: 

Life interest trusts

A life interest trust lets you choose someone to benefit from your assets during their lifetime. After they pass away, your assets go to someone else you have chosen, not someone they have picked to leave them to in their Will when they die. Think of it like you’re loaning assets to someone – they can receive a benefit from them, but they don’t legally own them.

Example: Life interest trusts are commonly used by couples who have remarried and have children from previous relationships. These trusts allow the couple to support each other after one partner’s death while ensuring that their respective biological children inherit their shares of the estate. 

The primary concern they aim to address is the risk of “sideways disinheritance.” This occurs when the surviving partner inherits the entire estate outright and subsequently leaves it solely to their own children, potentially excluding the children of the deceased partner.

Most life interest trusts last until the beneficiary dies, but you can set them to end after a certain period.

These types of trusts will usually require ongoing administration until they end, so it’s always worth seeking a legal review for assistance. However, their main benefit is that they offer you more control over your estate’s distribution when you die.

Discretionary trusts

These trusts provide greater flexibility than life interest trusts and allow the trustee to decide how to distribute the inheritance based on the situation. They can choose who gets the money and how much and when.

A discretionary trust is often used when someone who may be irresponsible with money or may struggle to handle the responsibility of an inheritance is a beneficiary. 

Example: You may leave money in a trust and name your child and grandchildren as potential beneficiaries . The trustee can decide whether your child should inherit based on factors that can only be known in the future after your death. If the trustees have concerns about the child receiving the inheritance, they could choose to give the money in the trust to the grandchildren instead.

How to create a trust in your Will

You can set up a trust in your Will at any time. If you’re considering putting a trust in your Will, follow these simple steps:

1. Choose the type of trust

First, decide if you’d prefer a discretionary trust or a life interest trust. This choice depends on your specific situation.

2. Pick your trustees

Next, choose who will manage the trust. It’s best to have at least two trustees, who can be family, friends, or professionals like solicitors.

3. Select your beneficiaries

Decide who you may want to receive the assets in the trust. For life interest trusts, this means choosing an initial beneficiary (like your partner) and secondary beneficiaries (like your children. For discretionary trusts, this means choosing more than one potential beneficiary for the trustees to select in the future.

4. Decide on the assets

Choose which assets you want to put into the trust. This can be the whole or part of your estate, a fixed sum of money or property.

5. Contact a regulated legal provider

Once you’ve determined the trust type, trustees, beneficiaries, and the assets you wish to transfer, it’s time to update your Will to include the terms of the trust you wish to establish. It’s best to contact a legal provider regulated by the Solicitors Regulation Authority to do this for you, as they will be able to explain the mechanics of how the trust works in more detail and because things need to be worded specifically to be legally binding.