Trusts In Wills – How To Protect Beneficiaries From Bankruptcy, Divorce Or Themselves

Including a Trust in your Will can be very useful for a number of reasons. Essentially a Trust is created where you have one set of people (the trustees) holding assets (the Trust fund) on behalf of others (the beneficiaries).

You can set up a Trust during your lifetime. This would involve creating a Trust deed and actually transferring over the assets to be held in the Trust to your trustees while you are alive.

Alternatively, you can include a Trust in your Will. In this case, the Trust doesn’t actually get set up until you die, as that is when your Will comes into effect.

Including a Trust in your Will to protect beneficiaries

A Trust in a Will can be very useful and can protect beneficiaries from third parties or themselves. If you leave an inheritance in your Will to a beneficiary who is bankrupt, your executors must pay it to the beneficiary’s trustee in bankruptcy who will use it to pay the creditors.

If you leave an inheritance to a beneficiary who is in the process of going through a divorce, the inheritance must be taken into account when deciding on the financial settlement with their ex-spouse.

If you leave an inheritance to an irresponsible or foolish beneficiary, they may well fritter the money away. In these circumstances, you might want to leave that inheritance, not to the beneficiary directly, but into a Trust.

How would the Trust work?

The type of Trust would depend on the circumstances but would often be a Discretionary Trust. The trustees you appoint would control the Trust fund and the beneficiary would be one of a number of beneficiaries who could potentially inherit.

The idea is that the beneficiary would not be entitled to anything from the Trust unless and until the trustees decide. The trustees could delay making payment to the beneficiary until they were discharged from their bankruptcy or the divorce was finalised.

Before this, the starting point is that the Trust fund would not be treated as an asset of the beneficiary. However, it is not always quite as cut and dried as that and you should take legal advice on your particular situation and circumstances.

For the unwise beneficiary, the trustees can control how much is paid out to the beneficiary and what it is used for.