A guide to trusts: Protecting your assets and wealth

Trusts have long been a key tool in estate planning, particularly for inheritance tax planning. However, since the introduction of the transferable nil rate band for married couples and civil partners in 2007, some have questioned their necessity.

While certain aspects of inheritance tax planning have changed, trusts remain invaluable for protecting assets and passing on wealth.

What is a Trust?

A trust is a legal arrangement where assets are held on behalf of chosen beneficiaries. Trustees, typically family members or trusted individuals, manage these assets and oversee their distribution. A solicitor can also act as a professional trustee to ensure impartiality.

Beneficiaries can include anyone, and in some cases, a beneficiary may also act as a trustee. However, it is advisable to seek legal advice to avoid potential conflicts of interest.

Trusts are governed by statute, and trustees must meet specific legal obligations, including:

• Submitting tax returns to HMRC
• Preparing accounts
• Holding regular meetings

Types of Trusts

There are several types of trusts, each serving different purposes:

Discretionary Trusts

Discretionary trusts provide trustees with the flexibility to decide which beneficiaries receive income or capital, when they receive it, and how much they receive. Decisions are typically guided by a letter of wishes from the individual who created the trust.

These trusts can be useful for:

• Adapting to changing financial circumstances
• Protecting assets for vulnerable beneficiaries
• Safeguarding family wealth during life and after death

However, discretionary trusts can have tax implications, so seeking professional guidance is essential.

Life Interest Trusts

A life interest trust grants a beneficiary (the life tenant) the right to receive income or occupy a property for life. When this right ends, the remaining assets pass to the beneficiaries named in the trust.

These trusts can be useful for:

• Provide for a spouse while preserving assets for children from a previous relationship
• Assist with care planning

Trusts for disabled and vulnerable beneficiaries

Trusts can also be created to support disabled or vulnerable individuals, either during the trust creator’s lifetime or through a will. These trusts ensure assets are properly managed while helping beneficiaries maintain their entitlement to state benefits.

The importance of professional advice

Trusts have become more complex in recent years, particularly due to their registration with HMRC and associated tax obligations. Seeking guidance from a qualified professional can help you:

• Understand how a trust will work
• Ensure compliance with legal requirements
• Manage the costs and tax implications of running a trust

Get expert advice on trusts

If you are considering setting up a trust to protect your assets and provide for your loved ones, professional guidance is essential.