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Family Trusts

Legal • Family Trusts

Supporting Long-Term Financial Planning for Families 

A family trust is a legal structure used to hold and manage assets on behalf of chosen beneficiaries, typically across multiple generations.  

While often associated with more complex financial planning, family trusts can serve a practical purpose for a wide range of UK families seeking greater structure, control, and flexibility in how wealth is managed and passed on. 

At Hoxton Wealth, family trusts are considered as part of a broader planning framework. They are not appropriate in every situation, but where they are used, the aim is to support clear, well-structured arrangements that reflect family priorities over the long term. 

This page explains how family trusts work, when they may be considered, and how they fit into wider financial planning. 

Learning Resources

What Is a Family Trust?

A family trust is a legal arrangement where assets are placed under the control of trustees, who manage those assets for the benefit of one or more beneficiaries. 

The key parties involved are: 

  • The settlor: the individual who creates the trust and transfers assets into it 

  • The trustees: those responsible for managing the trust in line with its terms 

  • The beneficiaries: individuals who may benefit from the trust assets 

Once assets are placed into a trust, they are no longer owned personally by the settlor. Instead, they are held and managed within the trust structure according to its rules. 

Family trusts can be used to hold a variety of assets, including: 

  • Cash and investments 

  • Property 

  • Business interests 

  • Other valuable assets 

Why Consider a Family Trust?

Family trusts are typically considered where individuals want to introduce an additional layer of structure and control around how assets are managed and distributed. 

Common objectives include: 

  • Providing for children or future generations 

  • Managing how and when beneficiaries receive assets 

  • Supporting family members who may require financial guidance 

  • Coordinating wealth across a wider family group 

  • Planning for long-term financial continuity 

Rather than distributing assets directly, a trust allows for a more gradual or controlled approach, depending on the terms set out at the outset.

Types of Family Trusts

There are different types of trusts used in UK planning, each with its own characteristics. The most common structures include: 

Discretionary Trusts 

Trustees have discretion over how and when beneficiaries receive income or capital. This provides flexibility, particularly where future needs are uncertain. 

Bare Trusts 

Assets are held for a specific beneficiary, who has an absolute right to them. These are simpler in structure but offer less flexibility. 

Interest in Possession Trusts 

A beneficiary has the right to receive income from the trust, while the underlying capital is preserved for other beneficiaries. 

The choice of structure depends on the family’s objectives, the level of control required, and the circumstances of the beneficiaries. 

How Family Trusts Work in Practice 

A family trust operates according to a legal document known as the trust deed. This sets out: 

  • Who the trustees are 

  • Who the beneficiaries are 

  • How decisions should be made 

  • What powers the trustees have 

  • How income and capital may be distributed 

Trustees are responsible for managing the trust assets, which may include: 

  • Making investment decisions 

  • Distributing income or capital 

  • Maintaining records and accounts 

  • Complying with legal and tax requirements 

Trustees must act in the best interests of the beneficiaries and in accordance with the terms of the trust. 

Control and Flexibility 

One of the key features of a family trust is the balance between control and flexibility. 

For example: 

  • A discretionary trust allows trustees to respond to changing circumstances, such as a beneficiary needing additional support 

  • Conditions can be set around when beneficiaries receive assets, such as reaching a certain age 

  • Trustees can take account of factors such as financial maturity or personal circumstances 

This flexibility can be particularly valuable where future needs are uncertain or where there are multiple beneficiaries with different requirements.

Tax Considerations 

Family trusts are subject to specific UK tax rules, which can differ from personal taxation. 

Depending on the type of trust, this may include: 

  • Income tax on trust income 

  • Capital gains tax on disposals within the trust 

  • Inheritance tax charges when assets are transferred into the trust or at certain intervals 

The tax treatment depends on individual circumstances and the type of trust used. As a result, careful planning and coordination with tax advisers is important. 

Taking a structured approach to tax planning is consistent with broader financial planning principles, where tax efficiency is considered alongside long-term objectives rather than in isolation.

When Might a Family Trust Be Suitable? 

A family trust may be considered in situations such as: 

  • Providing for young children or future generations 

  • Supporting beneficiaries who may not be ready to manage assets directly 

  • Managing assets intended for multiple beneficiaries 

  • Coordinating wealth where family circumstances are more complex 

  • Introducing a structured approach to long-term financial planning 

However, trusts are not always necessary. In some cases, simpler arrangements may be more appropriate. 

The decision depends on the individual’s objectives, the nature of their assets, and their family circumstances. 

Responsibilities of Trustees 

Acting as a trustee carries legal and practical responsibilities. Trustees are expected to: 

  • Act in the best interests of beneficiaries 

  • Follow the terms of the trust deed 

  • Make informed and balanced decisions 

  • Keep accurate records 

  • Comply with tax and reporting requirements 

Trustees may be individuals, professionals, or a combination of both. Choosing appropriate trustees is an important part of the planning process.

Family Trusts and Long-Term Planning 

Family trusts are often used as part of a long-term approach to managing wealth across generations. 

They can support: 

  • Continuity of family assets 

  • Structured financial support over time 

  • Flexibility to adapt to changing circumstances 

  • Coordination with other financial arrangements 

For many families, the value of a trust lies not only in the assets it holds, but in the framework it provides for managing those assets over time. 

Interaction with Other Financial Planning Areas 

Family trusts do not exist in isolation. They often form part of a wider financial plan that may include: 

  • Retirement planning 

  • Investment strategies 

  • Tax planning 

  • Protection arrangements 

For example, how assets are invested within a trust may need to align with broader investment strategies. Similarly, decisions about when to distribute assets may be influenced by beneficiaries’ financial positions. 

A coordinated approach helps ensure that all elements work together effectively. 

The Process of Setting Up a Family Trust

Establishing a family trust involves several steps: 

Common Considerations and Challenges 

Complexity 

Trusts can introduce additional administrative and legal complexity. This includes record-keeping, tax reporting, and ongoing management. 

Costs 

There may be costs associated with setting up and maintaining a trust, including legal and advisory fees. 

Tax Implications 

Trusts are subject to specific tax rules, which need to be understood and managed. 

Long-Term Commitment 

A trust is typically a long-term arrangement. It is important to consider whether it remains appropriate over time. 

These factors do not mean trusts should be avoided, but they do highlight the importance of careful planning.

FAQs

Getting Started 

A family trust can provide a structured approach to managing and distributing assets over time, particularly where there are multiple beneficiaries or long-term considerations. 

An initial consultation can help determine whether a trust is appropriate, explain the options available, and outline a clear path forward based on individual circumstances.

Important Information 

This page is for general information only and does not constitute legal or financial advice. Trusts may not be suitable for everyone and depend on individual circumstances. 

Tax treatment depends on personal circumstances and may change. Trusts are subject to specific legal and tax rules, which should be considered carefully. 

Hoxton Wealth (UK) Ltd is authorised and regulated by the Financial Conduct Authority (FRN 586130). Legal services are provided in conjunction with appropriately qualified professionals where required.

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How can Hoxton help

Various options are available to create a Will, from DIY Will kits to consulting a solicitor, obtaining a “free” Will from your bank or generating one online. However, each method comes with risks and may not be appropriate for your situation. An incorrectly drafted Will can result in unintended consequences, causing complications for your loved ones after you’re gone. Don’t take chances with the fruits of your entire life’s labour – trust Hoxton Wealth’s expertise in crafting a Will that fulfils your current and future needs. Get in touch today. 

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