Everyone needs a will, especially if you have dependents who rely on your income. It’s a legal document that gives instructions about how (and to whom) you want your assets distributed after your death.

It will name your beneficiaries and what you want each of them to receive. A beneficiary is anyone who will ultimately ‘benefit’ from your estate.

A will should leave instructions about who you want to appoint as your executors. These are the people you trust to oversee and manage the distribution of your assets in accordance with your wishes. They could be a family member, a good friend, or a professional such as a solicitor. You can appoint up to four executors, if you wish.

If you have young children, you can use your will to name the guardian you want to take care of them. You can also give funeral instructions, such as whether you want a burial or cremation, the type of ceremony and wake, and how you want people to remember you.

If you die without a will, it means you have died ‘intestate’. You are effectively leaving the courts to decide how your property will be distributed, who your beneficiaries are, and, even more important, who will look after your children.

In addition, probate will likely take much longer and cost a lot more to administer than if you had a clear and legal will outlining your wishes. That additional time, stress and expense will only add to the distress of your loved ones.

The short answer is no, a will won’t reduce your inheritance tax (IHT) liability. Anything over the current limit of £325,000 (known as the nil-rate band) will generally be subject to a 40% inheritance tax bill whether you make a will, or not.

However, if you leave the entire estate to your spouse or civil partner, they won’t usually need to pay any inheritance tax. And when they die, the IHT limit is doubled to account for your joint nil-rate band of £650,000.

For more on inheritance tax, see 9 ways to reduce the inheritance tax bill for your family

Unlike the assets specified in your will (which will only be transferred to someone else when you die), any assets transferred into a trust will no longer belong to you. Instead, the assets belong to the named beneficiaries and must be used for their intended purpose. A trustee is appointed, typically by you, and they’re responsible for holding and managing the assets in the best interests of the beneficiaries and in accordance with the terms of the trust.

Because the assets belong to the trust and not you, when you die, the value of the trust won’t be included within your estate. That means it won’t be subject to inheritance tax – but the beneficiaries may still be liable for taxes relating to the assets they take from it (such as income tax).

Another benefit of placing money into trust is that it’s not subject to probate. This means the courts don’t need to oversee distribution, avoiding potential probate delays to your beneficiaries receiving the money or assets.

To find out more about trusts, see Setting up trusts and gifting in your lifetime

Trusts are used for a variety of reasons as part of the estate planning process. While these reasons will differ depending on individual circumstances, here are a few common scenarios.

• When your children are young
  Placing assets in trust for your children means you avoid the risk of handing over an inheritance when they are too young (or vulnerable) to handle it. In this case, the trustees have a legal duty to manage the trust on their behalf until they reach a certain age or can manage their own money.For more on this, see Trust fund baby… the pros and cons of setting up a trust for your kids

• When you have children from a previous relationship
  If you’ve remarried and have children from your previous marriage, you can use an ‘interest in possession’ trust to continue providing your new spouse or civil partner with an income, without allowing them access to the underlying assets that generate the income.Instead, when your partner dies, the assets and investments held within the trust pass to your children, thereby securing their inheritance. Your partner will still be required to pay income tax in line with their personal allowances.

• When you want to pay for your grandchildren’s education
  A trust allows you to allocate your assets for a defined purpose, such as paying for school fees for your grandchild. Similarly, it could be used to help fund a loved one’s deposit towards a house when they’re ready to buy, or money towards a wedding or other life events.