The most commonly used forms of Trust used in Wills, and why.
The most common Trust is a Statutory Trust, purely because you cannot inherit property unless you are over 18 years old. Any Beneficiary who is under 18 when the Testator dies has an automatic Statutory Trust in their favour. The Trustees must hold on to the property on their behalf and there are various strict duties – such as a requirement to invest the money to try and maximise the fund – that they must adhere to. It is also possible for the Beneficiary to ask the Trustee for some of the funds before they reach the age of 18, and the Trustee can decide whether they will advance these funds or not, but they are under no obligation to do so unless they are convinced it is in the Beneficiary’s interest.
Other Trusts include:
This is where the Testator leaves a lifetime right (most commonly a right to live in the Testator’s property) to a Beneficiary, but when they die the property goes to another Beneficiary.
This type of Trust is used to help ensure that the property goes to the person they wish it ultimately go to but, at the same time, giving another person rights in the meantime. This is often used when a Testator re-marries and wants their property to go to their children, yet also wants their new partner to be able to use that property – but not leave it to them outright, as the property would then belong entirely to them and they could leave the property to whoever they liked, so the Testator’s children could get none of it.
Another reason for using the Lifetime Trust is if the person that the Trust benefits has financial trouble. If they are declared bankrupt the property can be sold to pay off debts. If they don’t own the property this can’t happen. It also means that they cannot sell the property and use the money unwisely.
This type of Trust leaves a gift (usually of money) to a Beneficiary, but the Trustees have the power to decide whether they can have the money or not. This type of Trust is usually set up if the Beneficiary is unwise with money – possibly a gambling problem or a drug/alcohol addiction. This type of Trust gives the Testator peace of mind that the Beneficiary will benefit from their Estate, but that there are some controls in place to ensure that it is used wisely.
Secret Trust/Half Secret Trust:
This type of Trust is less common in this day and age but used to be used a great deal more. It has sometimes been referred to as “The Mistress Trust” because it was a way that Testators could secretly leave money to their Mistress, or to their illegitimate offspring, without the family knowing! It was also used prior to the Married Women’s Property Act 1886 to leave gifts to married female relatives who were otherwise obliged to give all of her property to her husband.
In a Secret Trust, on the face of it the gift has been given to X. “I leave £10,000 to X”, but what it doesn’t say is that X has been given instructions (and the instructions must be given before the Will is signed or the gift does go to X!) to give that money to Y.
In a Half Secret Trust the money is, again, given to X, but the Will also states words along the lines of “to be distributed as per my instructions”.
A half secret trust is more secure, (unless the Secret Beneficiary knows about the Secret Trust it is possible for X to keep it and stay quiet!) as it begs the question “what are the instructions then?” but it also makes it clear that there might be a Mistress hiding in the wings! So the Testator has to be careful in their decision – possibly choosing more than one Trustee, making sure the Beneficiary knows about it, maybe even leaving a signed document with their lawyer or accountant to be extra sure their wishes are carried out.