Wobbly will wording – common drafting errors and failure to update your will
Jim Sawer
The will trust is enjoying a renaissance.
The decision by increasing numbers of people to leave their estates by will in trust, rather than outright, is not the product of any tax changes; contrary to popular belief, tax considerations are rarely the main driver for setting up a trust. Rather, as has been the case over the centuries, the extent and purpose of trust creation is a reflection of the nature of current society and its attitude to wealth preservation.
In Victorian times, even after married women were finally allowed to own their own property (!), social opinion as to the ability of a widow to manage her own finances was slow to change. Many husbands of any means left their estate in trust for their wives, with third party trustees controlling the purse strings.
Most modern wills sensibly leave everything to the surviving husband/wife, and otherwise to the children in equal shares. Nevertheless, the socially disproportionate affluence of the ‘older generation’ and a sharp rise in the number of second marriages among the over 60s means that an increasing number of inheritances are wrapped in trust.
A person marrying for the second time, later in life, may be faced with the challenge of providing for a new spouse while wishing to preserve assets for the children of their first marriage - especially if much of the wealth stemmed from the other parent (on the back of death or divorce). The solution might well be a Life Interest Trust for the surviving spouse (a right to income/enjoyment of the assets) with the children sharing the estate as ‘remaindermen’ on the spouse’s death.
Otherwise, where there is no second marriage, but substantial wealth has been built up, it might be inappropriate to simply leave their fortune to a surviving spouse, or the children, outright. There might well be a case to have funds controlled by third parties through a discretionary trust; to protect the estate from the profligacy of youth or the inappropriate attentions of others, especially if the children are young and their future life choices necessarily uncertain.
If a trust is appropriate, then the trust wording, be it for a Life Interest Trust (with appropriate power to advance capital either to the surviving spouse or the children) or a fully ‘Discretionary’ Trust will be pretty standard. Far more important than the terms of the trust will be:
- The decision as to who to appoint as trustees; and
- Having a carefully worded, separate, Letter of Wishes by the Testator giving guidance as to how they see the trustees exercising their power to apply the trust fund/estate for the benefit of the spouse/children as beneficiaries.
Who to appoint as trustee of a Will Trust
An ideal trustee is one who:
- Understands your wishes;
- Has no vested interest in the trust fund themselves ( though it’s not uncommon for a widow(er) to be appointed as one of the trustees where it’s a Life Interest Trust);
- May not be a financial expert, but has the wherewithal to take and apply appropriate, specialist, financial advice (as required by the Trustee Act 2000);
- Is known to, or otherwise will likely be open and communicative and otherwise work well with, the beneficiaries while having the strength of character to take a ‘robust’ position if necessary;
- Will take a conscientious ‘hands on’ approach to the role, with a serious approach to both fiduciary obligations and the practicalities of trust administration - attending to annual tax returns and accounts. Trustee ‘laziness’ can cause no end of issues.
In most cases it’s not necessary to appoint a professional trustee, such as a solicitor or accountant (who will properly charge for the work they undertake as trustee). But a professional trustee may be appropriate if:
- The estate is particularly complicated - there’s a business or farm perhaps, that needs to be kept going until sale or until one or more of the children are old enough to take it over; or
- (more commonly), family relationships demand an independent, third party trustee.
Trusteeship is necessarily a big responsibility but rarely a poisoned chalice, though the odd beneficiary is encountered with a propensity to be demanding, difficult and downright impossible over every small thing. If necessary, the trustee can seek appropriate legal advice/guidance from the Court at the expense of the trust fund.
Where trustees have to exercise discretion, they must do so in a considered way (balancing the interests and expectations of the various beneficiaries and being mindful of the testator’s wishes when creating the trust) and subject to an over-riding duty to act in ‘good faith’.
And the greatest aid to a trustee in making a decision is a detailed letter of wishes from the testator. Complying with the spirit of those wishes will be the most useful counter to any bad-faith argument from a disgruntled beneficiary.
A good letter of wishes acknowledges the likely needs and expectations of the various beneficiaries, adding sufficient detail to the points of general guidance to give the trustees a clear steer without endeavouring to dictate the rhythm of the family’s lives from beyond the grave.
Remember, a trust contained in a Will only takes effect on death. Until that point, the Will (and the choice of Trustees) can be changed at any time - or a letter of wishes updated to meet a change in circumstances without having to revisit the wording of the Will itself.
About the author
Jim Sawer is a partner in our private client team. He has a broad private client practice and has advised families in the UK and overseas, including those with commercial and landed interests, for over 30 years. Clients appreciate his ability to identify the true crux of a matter promptly and his results-orientated approach to resolving private client issues in the family context.
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