How to Administer an Estate where the Will Involves Trusts

If you’ve read our post on understanding the probate timeline, you should have a good understanding of just how much work is involved in the process of administering an estate. 

However, if you’ve found yourself responsible for administering a Will that includes trusts, you might be wondering how this will affect the process. 

What is a trust?

A trust is a legal mechanism that enables a group of trustees to hold money, property or other assets on behalf of someone else. 

They are often used in wills in order to allow individuals to leave assets to beneficiaries with certain conditions attached. How exactly this will work in practice is dependent on what kind of trust has been specified.

The trusts you might find in a Will include:

  • Bare trusts, which allow individuals to leave assets to someone who is not yet able to take ownership of them themselves, such as a child. 
  • Discretionary trusts, which allow individuals to leave money to be used for the maintenance and/or care of a loved one, even if they don’t consider that loved one capable of managing money themselves. 
  • Life interest trusts, which allow an individual to leave an asset such as a house for the benefit of one person while also being able to specify an ultimate beneficiary for the asset when the first recipient dies.

You can read more about different types of trust and what they might be used for in our help guide A Detailed Guide to Trusts

What’s different about administering an estate with trusts?

If you’ve been named as an executor in a Will that includes a trust, you’ll need to be aware of your responsibilities regarding this. Much of the process of winding up the estate will be the same whether or not trusts are involved, but there are some key ways in which it will differ.  

To begin with, you’ll need to follow all the usual steps including:

  • Assessing and valuing the estate.
  • Applying for probate.
  • Completing an inheritance tax form.
  • Collecting in any money owed to the estate.
  • Paying off any outstanding debts.
  • Selling property or other assets on behalf of the estate if necessary. 

The point at which the presence of a trust will affect the process is when it’s time to distribute any remaining assets to the beneficiaries. 

If you were dealing with a Will without trusts, you would simply transfer assets directly to the appropriate beneficiaries. However, if you’re dealing with a Will with a trust, you will need to set up the trust and then transfer the assets into that trust.

How does this work?

When a Will specifies the setting up of a trust, it will also name an individual or group of individuals to act as the trustees for that trust. Though these trustees will be responsible for the ongoing management of the trust, the responsibility for setting up the trust in the first place remains with the executor. 

Once the time has come for assets from an estate to be distributed as per the terms of the Will, the executor will need to ensure the trust is set up in readiness. Though it is technically possible to set up a trust yourself without legal assistance, this is not usually recommended. This is because trusts are complicated and, without expert help, it is easy to make a mistake.

After the trust has been set up, the executor will be responsible for transferring assets to the trust as per the Will’s instructions. They will also need to ensure that all named trustees have access to the trust. Finally, the executor will be expected to make sure that the trustees all understand their obligations to the trust and the instructions that have been left to them in the Will. 

Once these steps are complete, the trustees will then take over the responsibility of managing the trust. This will include the task of distributing assets to beneficiaries when appropriate, as specified in the terms of the Will. 

Are there any other considerations?

Many trusts now need to be registered with HMRC. In most cases, the responsibility for registering a trust will fall to the trustees rather than the executor. However, there are strict deadlines for when new trusts need to be registered so this might be something an executor would wish to be aware of. You can read our help guide about when trusts need to be registered here

Trusts also often have tax implications. Depending on the nature of the assets held in the trust, they could be liable for:

Again, though responsibility for completing self-assessment documentation and ensuring tax obligations are met is likely to rest with the trustees, this is something that executors should keep an eye on. Assets that are to be held in trust may also need to be considered when completing inheritance tax forms during the probate process.

If you believe the trusts in a Will you are responsible for may be liable for tax during the probate period, you may wish to seek professional advice to ensure you have met any relevant tax obligations. 

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