A trust is a legal arrangement that allows you to transfer control of your assets—typically financial or property-related—to appointed trustees, who manage them according to your wishes. This often takes effect upon your passing, ensuring your estate is handled with care and in line with your intentions.
Trusts can be a valuable tool for inheritance tax planning, safeguarding assets for future generations, and providing for vulnerable beneficiaries. Whether you’re planning ahead or managing a complex estate, our team of experienced, STEP-recognised solicitors is here to help.
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Trusts
Trusts can play a key role in managing and potentially reducing the tax burden on your estate. However, trust taxation is complex, and the rules vary depending on the type of trust and how it’s structured. Our experienced solicitors will help you navigate these complexities and ensure your trust is set up in the most tax-efficient way possible.
Inheritance Tax (IHT)
Assets placed in a trust may qualify for IHT relief or exemptions under certain conditions. For example, discretionary trusts can help reduce the taxable value of your estate, though they may be subject to a 20% entry charge if the value exceeds the IHT threshold. These trusts may ALSO incur further charges every ten years and when assets are distributed.
Income Tax
Trusts that generate income are subject to income tax, typically paid by the trustees. The applicable tax rates depend on the type of trust and the status of the beneficiaries. Proper structuring can help minimise the impact.
Capital Gains Tax (CGT)
When trust assets increase in value, CGT may apply when they are sold or transferred. However, some trusts benefit from exemptions, allowances, or lower rates. Planning is essential to avoid unexpected liabilities.
Our STEP-recognised specialists will assess your circumstances and advise on the most suitable trust structure to help you reduce exposure to IHT, income tax, and CGT, ensuring your wealth is preserved for the next generation.
Trusts
Not all trusts are created equal—each type is designed with a specific purpose in mind and offers unique advantages and limitations. Understanding these distinctions is crucial to selecting the right trust structure that aligns with your personal goals and circumstances.
Some trusts may provide enhanced control over assets, while others focus on tax efficiency or protecting the interests of beneficiaries. The table below provides a brief overview of the main types of trusts, helping you make an informed decision about which option best suits your needs.
| Discretionary trust | Property trust | Charitable trust | Disabled person’s trust |
|---|---|---|---|
| A discretionary trust allows trustees to distribute assets flexibly based on the changing needs of beneficiaries. | Property trusts protect a share of your home, often ensuring children inherit their portion despite changes in family dynamics. | An enduring charitable trust offers a meaningful and lasting way to make a difference through philanthropy. | A disabled person’s trust safeguards financial resources for individuals with disabilities while preserving access to state benefits. |
Frequently Asked Questions
A settlor is the person who creates a trust and transfers assets into it. Trustees are responsible for managing and distributing those assets in accordance with the trust’s terms. Beneficiaries are the individuals or organisations entitled to rceive benefits from the trust.
A trust can hold a wide range of assets, including cash, property, investments, and valuable possessions. The types of assets you place in a trust will depend on your financial goals and estate planning objectives.
While it is not legally required to use a solicitor, trusts can be complex. Professional guidance helps ensure they are set up correctly, tax-efficiently, and in full compliance with the law.
Placing property in a trust can limit your control over it, and depending on the type of trust, there may be tax implications and administrative costs. Additionally, some mortgage lenders may impose restrictions.
Some trusts can help reduce or defer inheritance tax, but they do not automatically eliminate liability. Tax treatment depends on the trust’s structure and how long the assets have been held within it.
Certain trusts, such as discretionary trusts, are subject to a periodic inheritance tax charge every ten years. This charge is usually up to 6% of the value of assets exceeding the inheritance tax threshold.
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