If you want to make sure your money goes exactly where you intend, a trust may be one of the most effective ways to do so.
Specialist Trusts Associate Solicitor Ed Granger explains what trusts are, the different types of trusts and what you can use them for.
What is a trust?
A trust is a legal arrangement that allows you to “ring‑fence” assets such as money, property, or investments so they can be managed for the benefit of chosen beneficiaries.
The person setting up the trust (the settlor) places assets into the trust in their lifetime or on their death, and those assets are then managed by trustees of their choosing.
Who are trustees?
Trustees are the people responsible for looking after the trust and making decisions in the beneficiaries’ best interests.
Settlors can choose:
- a family member or close friend
- a professional trustee, such as a solicitor
- or a combination of the two, which is a common approach for more complex trusts
Settlors can also be trustees, provided they always act for the benefit of the beneficiaries and not for their own personal interests.
Why do people set up trusts?
Trusts can be incredibly flexible. Some of the most common reasons include:
Protecting your family
- Making sure assets pass to the people you choose
- Providing for young children until they’re old enough to manage money
- Supporting a family member with limited capacity, perhaps due to disability or mental health issues
Maintaining control
- Ensuring assets stay within the family
- Preventing someone from inheriting if you don’t want them to
Planning for the long term
- Keeping a family business secure for the next generation
- Providing income for a spouse while preserving capital for children
Managing tax
- Controlling how and when assets are transferred, and timing transactions to be tax efficient
- Potentially mitigating the settlor’s and/or the beneficiaries’ own inheritance tax liabilities
In short: trusts help you protect what matters most, both now and in the future.
Types of trusts explained
There are several types of trusts available, each suited to different situations.
These can include (but are not limited to):
Bare trusts
A bare trust is where the legal ownership of an asset passes immediately to a beneficiary, but trustees continue to manage the asset as ‘caretakers’.
This can be very helpful where inheritances for minor children are held by ‘bare trustees’ until they become old enough to manage the funds themselves, and can have particular tax benefits for grandparents setting up a future inheritance for their young grandchildren
Life interest/interest in possession trusts
This is where beneficiaries such as surviving spouses can receive income from the trust straight away, but other beneficiaries such as children will enjoy future ownership of the underlying assets.
We find these can be particularly helpful in cases involving “blended families” where a couple would like each other to benefit from the trust but ultimately for the funds to then pass back to their respective families ensuring fairness for all involved.
Discretionary trusts
A discretionary trust is where trustees – guided by the wishes of the settlor – have flexibility to decide which beneficiaries receive assets, how much they receive and when the distribution happens.
These types of trusts are incredibly useful due to their flexibility. They can be used to provide support for disabled/vulnerable beneficiaries who are unable to manage funds themselves, protect funds for beneficiaries from unfortunate life events such as divorce or financial issues.
Generally, they ensure that the trustees can respond well to changing situations and make the best possible decisions based on the situation at the relevant time (rather than trying to predict what the future will look like from the outset). Individual beneficiaries’ situations can often change very quickly, and discretionary trusts are uniquely placed to adapt quickly to changing circumstances.
A combination?
Sometimes, a combination of the above may be the most suitable, but in my opinion there is no “one size fits all’” approach with trusts. The comprehensive professional advice which underpins a trust is always as important as the document itself. What is suitable will depend heavily on the associated tax implications, personal circumstances and overall wishes of the settlor.
Choosing an inappropriate type of trust can have unfortunate and unintended implications which are often costly and time-consuming to put right. Trusts are fact-specific, which is why I would always recommend exploring the full implications with a qualified, regulated, specialist solicitor.
Which trust is right for you?
You’re not expected to figure this out alone.
Trust law can be complex, and the right choice depends heavily on your personal and family circumstances.
Our specialist trust solicitors can talk you through your options clearly and help you choose the structure that best protects your wishes.
Whether you’re planning ahead, thinking about tax, or protecting your family’s future, we’re here to help. Call our specialist team on 03456 465 465 or email enquiries@rotherabray.co.uk
Disclaimer: This blog is for information only and does not constitute legal advice. If you need legal advice, please contact us on 03456 465 465 or email enquiries@rotherabray.co.uk to get tailored advice specific to your circumstances from our qualified lawyers.
