Trusts have a reputation problem. Half the people who ask us about them expect a tax shelter, and the other half expect something faintly disreputable. Both are working from an idea of trusts that is roughly forty years out of date.
The tax advantages that made trusts a mass-market product have largely been legislated away. What remains is what a trust was always actually for: control over the timing and conditions of who receives what.
What a trust genuinely does
A trust separates legal ownership from benefit. Trustees hold the assets; beneficiaries benefit from them; the trust deed governs the relationship. That separation is the entire product, and it is useful in a narrow set of circumstances.
Ask what problem the trust solves that a will does not. If there is no clear answer, there is no trust worth paying for.
The three cases where they earn their cost
Beneficiaries who should not receive capital outright. A child who is under eighteen, or who is vulnerable, or who has a difficult relationship with money. A will hands over the lot on a fixed date. A trust lets trustees release funds against circumstances rather than a birthday.
Second marriages. The classic problem: you want your spouse to be provided for during their lifetime, and you want the capital to reach your own children afterwards. Left to a simple will, the spouse inherits absolutely and may leave it wherever they choose. An interest-in-possession trust handles this cleanly, and it is the single most common reason we recommend one.
Business or agricultural assets with genuine succession complexity. Where the asset cannot sensibly be divided, and where the relevant reliefs interact with who holds what.
The costs people underestimate
- Ongoing administration. Trust tax returns, trustee meetings, records. Several hundred pounds a year, indefinitely.
- The ten-year charge. Relevant property trusts face a periodic inheritance tax charge every decade, plus exit charges on distributions.
- Trustee burden. Being a trustee is a legal duty, not an honorary title. Appointing a well-meaning relative who does not understand this causes real problems later.
Our usual advice
Most families do not need one. A well-drafted will, sensible use of the nil-rate bands, lifetime gifting where it is affordable, and a letter of wishes will cover the great majority of situations at a fraction of the cost.
Where a trust is the right answer, it is usually obvious why — and the reason is almost never tax.
An invitation
Would it help to talk this through?
An hour, at our cost, applied to your own numbers rather than an illustration.
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