It’s a great question and a surprisingly common one, especially as families become more aware of inheritance tax (IHT) and the need to protect their wealth for future generations. Trusts have long been a feature of estate planning for the wealthy, but they’re no longer just being used by the ‘super rich’. Today, they’re being used by families of all sizes who want to manage their assets more thoughtfully and more tax-efficiently.
But as with most things in tax, it’s not a simple yes or no.
Imagine you’ve worked hard to build up a nest egg, perhaps a family home, some savings, maybe a portfolio of investments. Now imagine you want to pass that wealth on, in your own time. While there are many options, a trust can be a popular one.
A trust is like a protective wrapper around your assets which allows you to:
In doing so, it creates a structure which separates beneficial and legal ownership, giving you control over how and when your wealth is passed on.
On top of this, trusts can also help to reduce inheritance tax. For example, certain types of trusts allow you to move assets out of your estate, meaning they’re no longer counted when HMRC calculates the IHT bill on your death. If you survive for seven years after the transfer, those assets may fall completely outside your estate, potentially saving your family thousands (or more) in tax.
Many people also use them to protect young or vulnerable beneficiaries, particularly where an outright inheritance might not be wise. Others use them to keep assets in the family, especially in situations involving divorce, remarriage, or business risk. Some simply want peace of mind, knowing their legacy will be handled responsibly, even after they’re gone.
It depends and this is where things get interesting.
Transferring assets into a trust can be incredibly valuable, but it isn’t always straightforward. For one thing, the transfer itself can come with tax consequences. You might trigger an immediate charge to inheritance tax if you put too much into a trust at once. There may be capital gains tax implications too, if appropriate reliefs aren’t considered.
Additionally, a trust should never be set up for your own benefit, as this can have adverse tax consequences.
Then there’s the trust itself. It’s not a ‘set it up and forget about it’ arrangement. Trustees have legal duties, tax reporting obligations, and the responsibility of managing the trust’s assets in line with your wishes. Certain trusts also face their own ongoing tax regime including charges every ten years, and when assets are taken out.
That’s not to say any of this is a deal-breaker. Far from it. But it does mean you need to go into it with your eyes open, and ideally, with professional guidance.
Trusts are not about hiding money or avoiding tax. They’re about planning sensibly, thinking ahead, structuring your wealth in a way that reflects your values, and making sure your family is looked after when you’re no longer here to do it yourself.
If you’re worried about inheritance tax, concerned about passing money to the next generation too soon, or simply want more control over what happens to your assets, then a trust might be worth exploring. But it’s not the kind of thing you want to Google your way through.
At ETC, we help clients understand whether a trust is the right fit for their estate and if it is, we make sure it’s set up properly, tax-efficiently, and with a clear long-term plan in place.
Every family is different. Every estate is different. And every trust should be tailored to match.
If you want to discuss whether a trust is right for you, do not hesitate to get in touch.
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