You’ve probably heard of a will, but if you’re looking into ways of protecting your loved ones after you pass away, you might also come across the term ‘trust’.
Wills vs trusts: what’s the difference?
A will is a document laying out who you want to get your money and possessions after you pass away. A trust is what you put in place if you want to assign someone the responsibility to look after your assets on behalf of someone else.
For example, you might want to leave money or property to someone under the age of 18, or someone who lacks the mental capacity to look after their own financial affairs. In this instance, you’d create a trust that keeps the money or assets safe.
The person appointed to be in charge of the trust, the trustee, is responsible for ensuring the beneficiary is looked after by the contents of the trust – for example, the money could be used to pay for their education. Read more about the role of the trustee.
There are two kinds of trust – living (or lifetime) trusts and testamentary (or will) trusts. The former can come into force while you’re still alive, while the latter is part of a will and so can only come into play after you’ve passed away.
There are some key differences between wills and trusts. They are summarised in this table:
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Wills |
Trusts |
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Only become effective after you pass away, even if you become permanently incapacitated. |
Testamentary wills only come into force after you pass away. Living trusts can become effective immediately, including if you become incapacitated. |
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Probate is needed to administer the will. |
Probate is not necessarily needed to administer trusts. |
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You can appoint a guardian for any children under 18. |
You can’t use a trust to appoint guardians for your children. |
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The family lacks control, as a probate judge oversees the process. |
The family are in full control of the assets and the process, without the need for a judge. |
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Probate is a public process – the assets and names of representatives and beneficiaries will be recorded. |
A trust is private and does not require the public disclosure of any information. |
Both a trust and a will can be contested, but the process of doing so varies between the two.
Which is right for me?
Whether a will or trust is right for you will depend on your circumstances.
A will is suitable if:
- Your wishes that are relatively simple
- You only plan to leave things to people who have the mental capability to take responsibility for them
- You need to appoint guardians to children under the age of 18
However, a trust may also be suitable if you:
- Plan on leaving assets to someone under the age of 18, or someone who is not able to take responsibility of the inheritance themselves
- Do not need to appoint guardians to anyone under the age of 18
- Would like to have something in place to protect your loved ones should you become incapacitated
Will trusts are useful for couples who own the family home as ‘tenants in common’ – putting the property into a trust that comes into being when the first partner dies means that the other one can continue to live there without the need to leave their share to one another in a will.
Will trusts are also a good way of avoiding ‘sideways disinheritance’ – if one person in a couple dies and leaves children from the marriage, but the second person remarries and fails to make provision for the children in their new will, there’s a risk that the new spouse will get everything and the children from the first marriage are deprived of the inheritance they might have been expecting.
A will trust allows you to officially leave the house to your children, but allows the spouse the right to continue living in it. However it is recommended to seek legal advice if you’d like to set up a trust for this reason.
Can I have a will and a trust?
Yes – in fact it is always important to make a will, regardless of whether you have a trust.
If you don’t need to make arrangements for the event of your incapacitation, you could have a will trust as part of your will. This means that you can leave money to minors or people who are not able to take responsibility for it, but you also have a basic will in place to distribute your assets and appoint guardians for under 18s.
If you would like to make arrangements for your incapacitation, you can set up a living trust but it’s strongly advised that you get a will as well. There are two main reasons for this:
- A trust is unlikely to include everything you own
- There are things a will does that a trust doesn’t, like naming guardians for minors
Things to consider
Just like wills, trusts have inheritance tax implications. If you transfer your property to a lifetime trust you might immediately face an inheritance tax bill of 20% of the value over the threshold of £325,000. The trustees may then have to pay further tax bills every 10 years, and if they sell assets in a trust they may be subject to capital gains tax.
Read more about trusts and inheritance tax.
Setting up a trust as well as a will can be a great way of ensuring the financial security of your loved ones, but it’s important to seek legal advice to be sure it’s the best option for you and to ensure you’re aware of the implications on inheritance tax.