A will trust, also referred as a will or testamentary trust, is a legal arrangement created by an individual during their lifetime. Trust come into effect upon their death of the person who established the trust. The purpose of a will trust is to hold assets on behalf of the beneficiaries of the trust. These assets may include property, investments, and other forms of assets. A trust is established to ensure that the assets are managed and distributed according to the individual’s wishes. Will trusts are becoming increasingly popular as people become more aware of the potential benefits they offer.
The trustee is responsible for managing the assets and distributing them according to the terms of the trust. The terms of the trust may dictate when and how the beneficiaries receive the assets. In some cases, the trustee may hold the assets in trust for a specific period and then distribute them to the beneficiaries. In other cases, the trustee may hold the assets in trust indefinitely and distribute the income generated by the assets to the beneficiaries.
Why Create a Will Trust?
There are several reasons why someone may create a will trust. One reason is to ensure that their assets are managed and distributed according to their wishes. Creating a trust allows the individual to ensure that their loved ones benefit from their assets, rather than their assets being subject to the laws of intestacy.
Another reason to create a trust is to reduce the impact of inheritance tax. Inheritance tax can be a significant burden on the estate of a deceased individual, and it is often the case that a large proportion of the estate is used to pay this tax. By creating a trust, the individual can potentially reduce the amount of inheritance tax that is payable, thereby preserving more of their estate for their loved ones.
Explanation of Essential Terms in a Will Trust
Here are some key terms to know when learning about will trusts:
As we mentioned earlier, one of the reasons why people create trusts is to reduce the impact of inheritance tax.
The trustee is the person who is responsible for managing the assets held in the will trust.
People often use will trusts to protect assets from creditors, divorce, and other potential threats.
The beneficiary is the person who receives the assets held in the trust.
Will trusts are an important tool for estate planning.
Probate is the legal process of administering a person’s estate after they have passed away. Will trusts can help to avoid probate.
The trust instrument is the legal document that establishes the terms of the will trust.
A revocable trust is a type of trust that can be changed or cancelled during the grantor’s lifetime.
An irrevocable trust is a type of will trust that cannot be changed or cancelled once it is created.
A testamentary trust is a type of trust that is created after the grantor’s death.
Disadvantages of a Trust
Although there are many advantages, here are 5 disadvantages of a trust:
- Cost: Creating and managing a trust can be expensive, particularly if it involves the services of an attorney or other professionals. In addition, some trusts require ongoing fees for maintenance, such as trustee fees, accounting fees, and administrative fees.
- Loss of control: When you place assets in a trust, the trust may cause you to lose some degree of control over the assets, depending on the type of trust you establish. For example, in an irrevocable trust, the assets are no longer under the control of the owner, and changes to the trust may be difficult or impossible.
- Complexity: Trusts can be complex legal documents, and establishing and maintaining them can be time-consuming and challenging. In addition, trusts may require ongoing management and administration, which can be a burden for some individuals.
- Tax implications: While trusts can offer certain tax benefits, they can also be subject to complex tax rules and regulations. Improperly managed trusts can result in unexpected tax consequences, such as gift or estate taxes.
- Public record: Unlike a will, which becomes a matter of public record upon the owner’s death, trusts are generally not public record. However, if someone contests the trust or initiates a legal dispute, the contents of the trust may become public knowledge.
It is important to carefully consider both the advantages and disadvantages of trusts before deciding whether to establish one. It may be helpful to consult with an attorney or financial advisor who can provide guidance on the best course of action based on your individual circumstances.