Wills and trusts are the two foundations of estate planning, and they are often confused. The honest answer to which you need is usually both, working together. Understanding what each one does is a helpful step when thinking about your family and the tax position of your estate.
What a will does
A will is a legal document that sets out who inherits your assets after you die, who looks after any children, and who administers your estate. Without a valid will, the rules of intestacy decide who benefits, and that may not reflect your wishes at all. Unmarried partners, for example, inherit nothing under intestacy.
A will is an important foundation, but it has limits. It only takes effect on death, it becomes a public document once probate is granted, and on its own it may do little to limit the impact of care fees, divorce or inheritance tax.
What a trust does
A trust is a legal arrangement where assets are held by trustees for the benefit of others. Unlike a will, a trust can operate during your lifetime as well as after death, and it gives you far more control over how and when beneficiaries receive what you leave them.
Trusts can be useful for protection. Depending on the circumstances, they may help with probate delays, help ringfence an inheritance against a beneficiary's divorce or creditors, provide for vulnerable family members, and form part of a wider inheritance tax approach.
How they work together
For most families, the strongest plans combine the two. A will can create a trust on death, known as a will trust, so that assets pass into a protected structure rather than directly to beneficiaries. This is particularly valuable for protecting a surviving spouse's home, providing for children from a previous relationship, or helping to limit the impact of future care costs on an inheritance.
A will without a trust leaves gaps. A trust without a will leaves loose ends. Used together, they cover both.
So which do you need?
- Most people benefit from having a will. It tends to be the foundation of any plan.
- A trust may be worth considering if you own a home, have children from more than one relationship, want to plan for the impact of care fees, have a vulnerable beneficiary, or have an estate approaching the inheritance tax thresholds.
- The right structure is personal. An unsuitable trust may cost more than it saves, which is why individual advice matters.
Getting it right
Because trusts can carry tax and administrative consequences, they are generally best not set up from a template. Where relevant, we aim to consider the tax position alongside the drafting, and discuss a combination of will and trust that may suit your circumstances.