Creating a trust can be one of the most effective ways to protect assets, provide for loved ones and ensure that your wealth is managed and distributed in accordance with your wishes.
Whether you wish to provide for children, protect vulnerable beneficiaries, preserve family wealth, support succession planning or incorporate trusts into a wider inheritance tax strategy, a carefully drafted trust can offer significant advantages.
Trusts are frequently used by homeowners, professionals, business owners and families who want greater control over how assets are managed during their lifetime and after death.
In this guide, our specialist private client solicitor explains what a trust is, why trusts are used, the different types of trusts available in England and the key considerations before creating one.
What Is a Trust?
A trust is a legal arrangement whereby a person known as the settlor transfers assets to one or more trustees, who hold and manage those assets for the benefit of one or more beneficiaries.
The trustees are legally responsible for administering the trust in accordance with the terms of the trust deed and must always act in the best interests of the beneficiaries.
Trusts can be established during a person’s lifetime or created through their Will to take effect after death.
Why Do People Create Trusts?
Every family is different, but trusts are commonly used to:
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Protect wealth for future generations
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Provide for children and grandchildren
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Safeguard vulnerable beneficiaries
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Control how inheritances are distributed
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Preserve family assets
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Assist with succession planning
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Support inheritance tax planning
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Reduce the risk of family disputes
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Protect assets following remarriage
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Manage wealth in a structured and flexible manner
Contrary to popular belief, trusts are not only for wealthy individuals. They can be a valuable planning tool for a wide range of families and individuals seeking greater certainty and protection.
7 Essential Facts About Creating a Trust in England
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There Is No Single Type of Trust
The term “trust” covers a variety of legal structures, each designed to achieve different objectives. The most commonly used trusts in England include:
Discretionary Trusts – Trustees are given discretion over when and how trust assets are distributed amongst beneficiaries.
These trusts are frequently used for; asset protection, tax planning or beneficiaries with changing needs.
Bare Trusts – The beneficiary has an immediate and absolute entitlement to the trust assets.
These trusts are commonly used for; investment planning, gifting to children or holding assets on behalf of minors.
Interest in Possession Trusts – A beneficiary is entitled to receive income generated by the trust assets, whilst the underlying capital passes to another beneficiary at a later date.
These trusts are often used within your Will as part of family succession planning or for blended families.
Vulnerable Beneficiary Trusts – These trusts are designed to provide financial security for individuals with disabilities or additional care requirements.
Will Trusts – These are trusts established through a will which come into effect after death.
Choosing the correct trust structure is crucial, as each type of trust carries different legal, administrative and tax consequences.
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Trusts Can Protect Family Wealth
A trust can help preserve assets for future generations and reduce the risk of wealth being lost due to unforeseen circumstances.
Depending on the circumstances, trusts may provide a degree of protection for future generations as placing assets under trustee control allows families to exert greater oversight over how wealth is preserved and distributed.
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Trusts Are Often Used as Part of Estate Planning
Trusts regularly form part of a wider estate planning strategy, and a comprehensive strategy will also include the following:
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A professionally drafted will
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Lasting Powers of Attorney
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One or more trusts
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Succession planning measures
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Inheritance tax planning
Many clients choose to establish trusts to ensure assets pass to future generations in a controlled and tax-efficient manner, whilst protecting vulnerable family members and reducing the risk of future disputes.
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Trustees Have Significant Legal Responsibilities
The choice of trustee is one of the most important decisions when establishing a trust. Trustees have extensive duties and obligations, including:
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Managing trust assets
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Keeping accurate records
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Acting impartially between beneficiaries
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Making investment decisions
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Complying with legal obligations
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Maintaining trust accounts
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Filing tax returns where required
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Registering trusts where applicable.
Trustees must always act in accordance with the trust deed and in the best interests of the beneficiaries.
Many clients appoint a combination of family members and professional trustees to ensure an appropriate balance of personal knowledge and professional expertise.
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Trusts Can Protect Young and Vulnerable Beneficiaries
Trusts are frequently used to provide long-term financial protection for:
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Children
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Grandchildren
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Disabled beneficiaries
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Vulnerable adults
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Beneficiaries who may struggle to manage significant assets independently.
Rather than receiving assets outright, beneficiaries can benefit from funds being managed responsibly by trustees for their benefit.
The Settlor will usually provide guidance to the Trustees indicating the purposes which they would like funds to be released for and this can include:
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Education
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Housing
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Healthcare
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Business opportunities
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General maintenance and welfare.
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Trusts Can Have Important Tax Implications
Tax considerations are often central to trust planning. Depending upon the type of trust and circumstances involved, trusts may trigger; Inheritance Tax, Income Tax or Capital Gains Tax.
The tax treatment of trusts is highly complex and varies significantly depending on the trust structure, the assets involved and the beneficiaries.
Specialist legal and tax advice should always be obtained before assets are transferred into trust.
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Professional Drafting Is Essential
Trusts should never be regarded as standard template documents. A professionally drafted trust should take account of:
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Family circumstances
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Asset structures
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Beneficiary needs
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Tax considerations
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Succession planning objectives
Poorly drafted trusts can result in:
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Family disputes
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Unintended tax consequences
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Administrative difficulties
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Trustee uncertainty
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Costly litigation
Seeking professional legal advice helps ensure the trust achieves its intended purpose and remains effective for years to come.
If you would like to discuss setting up a Trust and the running of an existing Trust and how we may be able to help, please give our friendly team a call on 0116 212 1000 or 01858 445 480 or complete our Contact Us form.
Written by a qualified Solicitor and enhanced by AI
