Wills and trusts: understanding the different roles

A will directs; a trust holds

A will is an instruction that takes effect on death. It says who should receive what, appoints the executors who gather in the estate, pay what is due and distribute the rest, and can name guardians for children. A will governs distribution after death; it does not authorise someone to manage your affairs during your lifetime. Changes must meet legal formalities while you have the necessary capacity — a Lasting Power of Attorney is the separate document that deals with decisions while you are alive.

A trust separates legal ownership from benefit: trustees hold and manage the assets, beneficiaries benefit, and the trust deed, will or other governing terms set the terms within which the trustees act. A lifetime trust starts operating when it is created; a will trust is created by your will and only operates after death.

The two are not alternatives. Where families use both, they tend to do different jobs — the will decides destinations, the trust can provide a framework for the manner and timing of arrival, where a specialist considers one suitable.

What a will does not control

A common surprise is how much of an estate never passes under the will. Ownership and nominations often decide first.

• A home held as beneficial joint tenants passes to the surviving owner by survivorship, whatever the will says. Held as tenants in common, each share can be left by will or into a trust.
• Pension death benefits depend on the scheme rules. An expression of wishes may guide the provider or trustees but does not necessarily determine payment.
• A life policy written in trust pays to the trustees rather than into the estate.
• Shares pass subject to the company's articles and any shareholders' agreement.

Types of trust behave very differently

"Trust" is a category, not a product, and the differences matter more than the label. Under a bare trust in England and Wales the beneficiary is entitled to the assets at eighteen and can call for them. A discretionary trust gives no fixed entitlement: the trustees decide who benefits, how much and when, within the deed and their general duties. Other arrangements sit between the two, giving one person a right to income or occupation while the capital is preserved for someone else.

So the useful question is never "should we have a trust?" but "which arrangement produces the result we want, and what does it cost in control and administration?"

When a trust earns its keep

Trusts tend to be considered where an outright gift would not do the job: a beneficiary who is young, or vulnerable, or receiving means-tested support; a second family where a partner needs security and earlier children need capital preserved; a business interest that should reach one member of the family and be paid for in a particular way; or simply where the timing of access matters.

They are also used to receive life policy proceeds, which can affect both the timing of payment and the estate's Inheritance Tax position. Whether any of this is appropriate, and what the tax consequences are, depends on the facts and requires specialist advice.

The obligations that come with a trust

A will is a document you keep safe. A trust is an arrangement someone has to run. Trustees become the legal owners: they must keep to the deed, act in the beneficiaries' interests, invest suitably, keep records and accounts, and hold the balance fairly between beneficiaries whose interests compete. A trustee who gets that wrong can be personally liable.

Depending on the trust and its assets, trustees may need to account for Income Tax and Capital Gains Tax on trust income and gains, and Inheritance Tax can arise in more than one place — potentially when assets go in, at ten-yearly intervals, and when assets leave. Most express trusts must also be registered with HMRC's Trust Registration Service and the record kept current; registration can apply even where no tax is due, and some trusts are excluded, so the position needs checking rather than assuming.

Those costs and duties are part of the decision, not a footnote to it: for some families they are enough to make a trust unsuitable. Changing or unwinding an arrangement later can also be difficult, and a specialist should explain what would be possible before anything is signed.

What neither document can promise

Trusts are widely marketed on claims they cannot support. A trust does not automatically remove assets from an estate, eliminate tax, defeat a claim, or shield assets from creditors, divorce settlements or care costs. Timing and motive matter, and arrangements made to avoid a known liability may be challenged.

A letter of wishes alongside a trust guides the trustees but does not bind them and cannot override the governing terms or guarantee a particular outcome. Any adviser describing a structure as a guaranteed answer is worth questioning.

A fictional illustration

This example is entirely fictional and no outcome, suitability or saving is promised. Imagine grandparents who want to help two grandchildren, one aged nine and one aged twenty-two. They are weighing three quite different things: giving money outright now, holding it in a bare trust where the younger child would become entitled at eighteen, and a discretionary arrangement where trustees could decide the timing within the powers the governing terms give them. Timing is what separates the three — help now, help at a fixed age, or help judged later by someone else. Nothing here recommends any of them; which, if any, is appropriate depends on their circumstances and on specialist advice.

Questions to ask before you choose

Take these to whoever is advising you, before anything is drafted or signed.

• What do I want to happen, for whom, and when — before any structure is named?
• How is each significant asset actually owned, and what does that already determine?
• Would a will alone achieve this, and if not, precisely what is the trust adding?
• Which type of trust, and why that one rather than the alternatives?
• What am I giving up control of, and can I still benefit?
• What are the tax, reporting and registration obligations, and who does that work each year?
• What does it cost to set up, and to run for the next twenty years?

Where Cromwell Associates fits

We coordinate the enquiry. One named contact records what you want to achieve and how things are owned, then introduces you to a specialist who assesses suitability, advises and drafts under their own engagement. We do not draft wills or trusts, give legal or tax advice, or act as trustee or executor.

Further reading on this site is linked alongside this article, including our guide to provision for blended families and the Trusts & Legacy pages.