Do You Need a Trust in Your Will?
A Guide to Inheritance Tax Trust Planning
Trusts have long been used in estate planning to protect family wealth and reduce inheritance tax. However, the introduction of the transferable nil rate band has changed how many trusts operate within wills.
Understanding when trusts are appropriate and when they are unnecessary is an important part of modern estate planning.
Common Types of Trusts in Wills
Discretionary Trusts
A discretionary trust allows trustees to decide how assets are distributed among beneficiaries. These trusts provide flexibility and are often used to protect assets for future generations.
They can also help in situations where beneficiaries may be vulnerable or where family circumstances may change.
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Life Interest Trusts
A life interest trust allows one beneficiary to benefit from an asset during their lifetime, after which the asset passes to other beneficiaries.
This structure is commonly used in second marriages to ensure that a surviving spouse can remain in the family home while preserving assets for children.
How Trusts Affect Inheritance Tax
Trusts can affect inheritance tax calculations, including how much of the nil rate band is used when the first spouse dies. Some older wills created discretionary nil rate band trusts, which were designed to minimise tax before transferable allowances were introduced. Because of these changes, older wills containing trust provisions should be reviewed regularly.