A trust is a useful way to manage assets, offering flexibility in how they’re controlled and passed on.

There are different types of trusts available in England and Wales, each with its own rules and tax implications.

What can you put in a trust?

You can place a variety of assets into a trust, including:

• Cash
• Property
• Shares
• Land

A solicitor will draft the trust deed to ensure everything is legally sound, and you or an accountant can handle any tax obligations.

Who’s involved in a trust?

When setting up a trust, three key roles need to be filled:

1. Settlor – The person who puts assets into the trust.
2. Beneficiary – The person or people who will benefit from those assets.
3. Trustees – Individuals appointed to manage the trust on behalf of the beneficiaries.

It is entirely your decision who you choose to be a trustee, but make sure the person you select is trustworthy, reliable and willing to accept the responsibility.

What are the benefits of a trust?

Different types of trusts serve different purposes, helping you manage your assets in a way that suits your needs.

For instance, if you want to pass on assets to a child but don’t think they’re ready to manage them yet, a bare trust allows you to retain control until they reach a suitable age.

In cases where a relative struggles with financial management due to illness or disability, a trust allows you to oversee their assets on their behalf.

Trusts can also protect means-tested benefits. For example, if someone receives a compensation payout but cannot work, placing it in a trust can ensure their benefits aren’t affected.

Placing valuable assets in a trust removes them from your personal estate, meaning they are generally protected from divorce settlements and bankruptcy claims.

Life interest trusts also allow one person to use an asset for their lifetime while ensuring it passes to someone else after their death, which can be helpful in blended family situations.

By placing your home in a trust, it may not be considered in financial assessments for care home costs. However, local authorities may challenge this if they suspect you’re deliberately reducing your assets to avoid paying fees.

Things to consider before setting up a trust

While trusts have clear advantages, there are some factors to keep in mind:

• Costs – There will be legal fees to set up the trust, and some trusts may require ongoing accountancy services. However, not all trusts need annual tax returns, and a solicitor can advise on cost-effective solutions.
• Unexpected tax consequences – If you place an asset in a trust but continue to benefit from it (e.g., living in a home held in trust), it could still be counted as part of your estate for inheritance tax purposes, reducing any tax-saving benefits.
• 10-year tax charges – Some trusts, such as discretionary trusts, face an inheritance tax charge every 10 years. If the trust’s value exceeds £325,000, a tax of around 6 per cent may apply, but careful planning can help minimise this charge.

Getting legal advice is essential to ensure your trust is set up correctly for your personal circumstances.

Could a trust work for you?

Trusts can be an effective way to manage your estate, protect assets, and reduce tax.

To find out which trust best suits your needs, get in touch with our Wills, Probate and Trusts team for expert advice.