How to Include Trust Fund Assets in a Will

Including trust fund assets in a will forms part of comprehensive estate planning. Trusts and wills are separate legal structures with different purposes, but they often interact when someone dies. Understanding how trust assets are treated on death, how (and whether) they can be directed by a will, and what practical steps to take can help ensure your intentions are carried out smoothly and with minimal estate administration issues.

This article explains the legal principles under English and Welsh law, the role of wills and trusts, how to deal with existing trust assets when making a will, the implications for executors and trustees, and common issues that arise in practice.

Trusts and Wills in Estate Planning

A trust is a legal arrangement where one or more people (trustees) hold and manage assets for the benefit of others (beneficiaries). The person who creates the trust is called the settlor, and the terms under which the assets are held are set out in a trust deed or, in some cases, in a will. Trusts can be set up during life or take effect on a person's death when triggered by the will.

In contrast, a will is a legal document that sets out how a person wishes their estate to be distributed on their death. Under the Wills Act 1837, an adult can make testamentary dispositions of property to take effect after their death, provided the will is in writing and properly executed.

Trust fund assets that already exist at the time of death are treated differently from assets placed into trust by a will. It is important to understand these differences when planning your estate.

Can a Will Control Assets Already in a Trust?

In general, assets already placed into a trust before death are not included in your estate and therefore cannot be redistributed by your will. When assets are transferred into a trust, the legal ownership usually passes to the trustees immediately, even if you retain a beneficial interest. Because the trust operates as a separate legal arrangement, the assets no longer form part of your estate on death and are not subject to testamentary disposition through a will.

Trusts established during life – whether discretionary, interest in possession, or bare trusts – hold assets independently of your estate once they are validly constituted and funded. The will cannot dictate what happens to those assets unless the trust itself includes terms that give the settlor or trustees discretion after death.

How a Will Can Interact with Trust Assets

1. Trust Created by Will (Will Trust)

A will may create a trust when it takes effect on death. Common examples include trusts for minor beneficiaries, lifetime interest trusts for a spouse, or discretionary trusts for grandchildren. These trusts are defined in the will itself and come into effect only after death. The will expressly sets out:

• the assets to be held in trust;
• the trustees who will manage them; and
• the beneficiaries and how they benefit (e.g., income during life, capital at a certain age).

A trust created by will (a will trust) holds assets that otherwise would form part of the estate and takes effect only on death. Trustees then administer those assets according to the trustee duties and the terms of the trust.

2. Inclusion of Trust Directions in a Will

If you have existing trust structures, you can use your will to:

• top up an existing trust by directing that certain assets in your estate transfer into the trust on death;
• appoint trustees to manage both your estate and existing trust provisions; or
• provide instructions for how probate should treat assets that pass into trust on death.

Where the will adds assets to a trust that was set up outside the will, the trust may need to be registered depending on the trust type and how long it continues beyond administration.

3. Appointing Trustees and Beneficiaries

Your will can designate who should act as trustees for any trust created in the will. These trustees have legal obligations to:

• manage the trust assets prudently;
• invest and distribute income and capital in accordance with the terms of the trust; and
• report and deal with any tax liabilities arising from the trust. Trustees' powers and duties are fundamental legal concepts in trust law, distinct from their role as executors of your will.

Practical Steps for Dealing with Trust Assets in a Will

Step 1: Identify All Trusts Connected to You

Start by compiling a complete list of any existing trusts you have established or in which you have a beneficial interest. For each trust, note:

• the type of trust (e.g., discretionary, interest in possession, bare trust);
• the trustees and their contact details;
• any terms governing distributions after your death; and
• the assets held in the trust.

This inventory will help you and your professional adviser understand what your will can and cannot control.

Step 2: Decide What Should Happen on Your Death

Work with a wills and trusts specialist to determine whether:

• you want to create a trust by will for specified beneficiaries (for example, grandchildren or vulnerable persons);
• you intend to leave assets outright to beneficiaries, with no trust involved; or
• existing trusts should be topped up from your estate.

When trust assets are involved, careful wording is essential to ensure that your will reflects your intentions and does not inadvertently conflict with trust law principles.

Step 3: Draft Clear and Precise Trust Clauses

Trust provisions in wills should be drafted with precision. Common types include:

• Interest in possession trusts, where a beneficiary gets income for life or for a defined term;
• Discretionary trusts, assigning trustees discretion over distributions to a class of beneficiaries; and
• Protective trusts, designed to protect assets for beneficiaries who may be vulnerable or need controlled access. Drafting errors can lead to unintended results or litigation, so professional drafting is critical.

The Perpetuities and Accumulations Act 2009 governs time limits on how long interests can continue, which can affect trust provisions.

Step 4: Consider Tax and Administrative Implications

Trusts can create inheritance tax implications. Assets vested into a trust on death or held within a trust may attract:

• exit charges when assets leave the trust;
• 10‑year anniversary charges on trusts that persist; and
• inheritance tax on relevant property held within trusts.

Careful tax planning helps ensure the trust strategy aligns with your overall estate and tax objectives.

Executors, Trustees and Administration After Death

When you die, your executor and trustees have distinct roles:

• The executor administers your estate, applies for probate and deals with estate assets that are not already in trust.
• The trustees administer trust assets, irrespective of the will, according to the trust deed or will clauses that created the trust.

Assets already held in existing trusts do not normally pass through probate and are not controlled by the will. However, where a will creates a trust, the executor must transfer the specified estate assets into trust before trustees take over their management. This process can involve probate forms and reporting to HM Revenue & Customs.

Common Questions About Trusts and Wills

Can a will revoke an existing trust?
Generally, a will cannot revoke a trust established during life unless you retain a power to revoke or vary the trust in your own capacity as settlor and the trust terms allow such variation.

Do I need to include trust assets in the will?
Assets already held in trust typically do not need to be included in a will because they are outside your estate. You may, however, wish to refer to them for clarity or to direct how additional estate assets interact with them.

What happens if a beneficiary dies before me?
Your will should include alternative provisions where a beneficiary predeceases you or cannot take a benefit. Trust structures can offer flexibility in managing such scenarios but require careful drafting.

Key Takeaways

Trust fund assets and wills operate under distinct legal principles in England and Wales. Assets already held in trust at death do not form part of your estate and cannot be redistributed by your will. However, wills can create trusts, appoint trustees, and direct estate assets into trust structures on death. A clear inventory of trusts, precise drafting of trust clauses, and an understanding of tax implications help ensure your testamentary intentions are fulfilled. Executors and trustees must follow the trust terms and legal requirements when administering trusts and estate assets, making early planning and professional guidance valuable for effective estate management.