Estate planning: Trusts Explained – a Practical Tool That Could Benefit You and Your Family

At its simplest, a trust is a legal relationship between three parties:

• Settlor – the person who creates the trust and transfers assets into it.
• Trustees – the people responsible for managing those assets in line with the settlor’s wishes.
• Beneficiaries – the individuals who benefit from the trust, either immediately or in the future.

While the legal terminology may sound complex, the principle is straightforward: the settlor places assets under the trustees’ care for the benefit of chosen beneficiaries.

Trusts are not just for high-net-worth individuals. They are practical tools for families who want:

• Tax efficiency – structuring assets to minimise unnecessary tax.
• Asset protection – shielding wealth from divorce, creditors or mismanagement.
• Control – determining how, when, and to whom assets are distributed.
• Peace of mind – knowing that wealth will be used as intended.

Different types of trust perform different functions, and it is important to choose the right one for your needs.

A lifetime trust is set up while you are alive, often as part of a wider estate planning strategy. One of the main attractions is potential inheritance tax (IHT) efficiency, as transferring assets into trust may help reduce the size of your taxable estate.

There are different types of lifetime trusts, including:

• Bare trusts – simple arrangements where beneficiaries have absolute rights to the assets.
• Discretionary trusts – offering trustees flexibility to decide how and when beneficiaries receive funds.
• Discounted gift trusts – commonly used for IHT planning while allowing the settlor to retain some benefits.
• Interest in possession trusts – giving a beneficiary rights to income from the assets, while capital is preserved for others.

The benefits depend on how much control you are willing to give up. If the settlor retains full access to the assets, tax advantages may be limited. By relinquishing ownership, however, it becomes more likely that IHT efficiencies can be achieved.

A will trust is created on death, through instructions in your will. Instead of leaving assets directly to beneficiaries, they are placed in trust, and the trustees manage them in accordance with your wishes.

Unlike lifetime trusts, will trusts are not typically used to reduce IHT during your lifetime. Instead, they are a valuable tool for asset protection and control after death.

For example, leaving assets outright to a beneficiary means those assets become part of their estate – and may be vulnerable if they divorce, remarry, or encounter financial difficulties. A will trust helps protect against these risks by keeping assets in a trust structure rather than in the beneficiary’s personal estate.

Trusts can be highly effective but also bring responsibilities. Some types of lifetime trusts face additional reporting requirements, such as 10-yearly IHT charges. Without careful structuring, the wrong trust can create unexpected tax bills or administrative burdens.

This is why professional advice is essential – ensuring the trust structure matches your goals while complying with current rules and regulations.

The right trust can provide protection, direction, and lasting peace of mind. But choosing the wrong structure can lead to unintended tax or legal consequences. To make sure your planning is effective, it’s important to work with a qualified professional who can tailor a trust to your circumstances.

Our estate planning professionals here at Infinity (powered by Hoxton) have a wealth of experience advising expatriates on whether a trust is for them and which type of trust will achieve their objectives without negative knock-on effects.

A well-structured trust can safeguard your family’s future. The right planning starts with the right advice. Contact us for a complimentary consultation on how to protect your assets and your loved ones.