Understanding the concept of Will trusts
Understanding the circumstances under which you can establish making a will trust, the types of trusts available under a will and the parties to a trust. Learn the roles of the trustee and the criteria of their selection. Fully understand your options with respect to trusts established under a will.
With respect to a will, a trust is a legal contract in which a trustee holds an estate on behalf of the beneficiaries. The trustee in this case is responsible for managing the estate on behalf of the beneficiaries and should do so with their best interests in mind. This article is limited to trusts established in a will and not any other trust.
Reasons for establishment of will trusts
First, the children are not old enough to take care of the estate. They do not have the mind-set nor the level of education required to run the estate properly. Therefore, a trust is established to manage the estate on their behalf till they are capable of managing it properly. Secondly, the trust is responsible for the provision of the financial assets required to ensure the children get their basic needs. In some cases, the trust will disburse some money to the beneficiaries periodically for their day to day needs.
A trust may also be established to mitigate the issue of inheritance tax. The tax will only be paid to a certain extent reducing the liability of the beneficiaries. It may not be avoided entirely in some situations. A trust may also be established by one spouse to fully provide for the needs of the other spouse upon their demise but at the same time ensuring the estate is maintained for the benefit of the children in future. It may also be established to prevent sale of assets in order to provide for the needs of the family in your absence.
Parties to a trust
The person setting up the trust is called a settlor. He is the owner of the assets and the money used to set up the trust. The settlor is therefore the person who is responsible for setting up the rules and guidelines of the trust for the benefit of his dependants. The trustee is the person responsible for the day to day management of the trust. He ensures that the guidelines laid down by the settlor are followed wisely.
The beneficiaries are the people on whose behalf the trust is held. The trust is set up for the fulfilment of their future needs. In most cases, they are children under the age of eighteen or people with no capacity to run the estate properly. The settlor should expressly name all the beneficiaries of a trust to avoid confusion and disputes.
Will trust types
A fixed trust has the beneficiaries expressly named and the proportion of the estate that they will receive is also specified. This may be in the form of a percentage or fraction since the estate will continue growing under the management of the trustee. On the other hand, a discretionary trust only has the names of the beneficiaries. The trustee is expected to investigate the circumstances of each beneficiary and bequeath them what he deems to be appropriate.
A trust for the disabled is usually a type of discretionary trust but with an added advantage of some types of tax exemptions. The trust is common when the amount held in trust is for the benefit of disabled people whose disability ensued on the grounds of personal injury. A protective trust ensures that the beneficiaries receive some income from the trust regularly but the initial capital of the trust remains protected. It is usually a precaution taken to ensure beneficiaries prone to bankruptcy are provided for but at the same time are kept away from being bankrupt.
An interest in the possession trust is another type of trust that is set up to pass to one person upon whose demise, the estate passes on to another person. For example, the spouse of the testator is in charge of the estate but the estate will pass on to the children after the death of the spouse. It is used to provide for the family but still hold the estate for the children’s use in future. Accumulation and maintenance trusts are very complex trusts with a number of rules and restrictions. It is meant to cater for the living expenditure of the beneficiaries.
Appointment of trustee
A trustee should be chosen on several grounds. First they must have reasonable financial knowledge to be able to run and grow the estate. They should also be honest and people who have the best interest for the beneficiaries. Trustworthy individuals who are expected to live longer than you should be selected.
Their duties include growing the estate through viable investments which should be reviewed regularly. They have a duty of care to the beneficiaries of the trust and therefore, they should make any payments to beneficiaries as stipulated and pass on the management of the estate as instructed. They must follow the rules of the trust unless when a court of law rules otherwise.