Trusts are a powerful legal tool used for managing and protecting assets. Whether for estate planning, tax efficiency, or safeguarding wealth for future generations, trusts offer flexibility and control. However, they are also complex and subject to specific legal and tax rules.
At Blackstone Solicitors, we advise clients across England and Wales on the creation, management, and administration of trusts. In this article, we explain what a trust is, the different types available, and how to set one up in the UK.
Please click here to find out more about our Wills, Probate and Lasting Power of Attorney Services.
Free Initial Telephone Discussion
For a free initial discussion on how we can help you deal with the legal implications of dealing with Deeds of Variation, get in touch with us today. We are also experienced in dealing with all aspects of Wills and Probate and we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
What Is a Trust?
A trust is a legal arrangement where one or more people (the trustees) hold and manage assets on behalf of others (the beneficiaries). The person who creates the trust and transfers assets into it is known as the settlor.
Trusts can be used to manage a wide range of assets, including:
- Money
- Investments
- Land and property
- Business interests
The terms of the trust are usually set out in a legal document called a trust deed, which outlines how the assets should be managed and who benefits from them.
Why Set Up a Trust?
Trusts are used for a variety of personal, financial, and legal reasons, including:
- Estate planning – to pass on wealth in a controlled manner
- Protecting assets – for vulnerable or minor beneficiaries
- Tax planning – to mitigate Inheritance Tax or Capital Gains Tax
- Providing for dependants – such as children or individuals with disabilities
- Managing business succession – ensuring continuity of ownership
Trusts can be created during a person’s lifetime (lifetime trusts) or through their will (will trusts).
Key Roles in a Trust
Every trust involves three main parties:
- Settlor – the person who creates the trust and transfers assets into it.
- Trustees – the legal owners of the trust assets, responsible for managing them in accordance with the trust deed.
- Beneficiaries – the individuals or groups who benefit from the trust, either through income, capital, or both.
Trustees have a legal duty to act in the best interests of the beneficiaries and to manage the trust prudently and lawfully.
Types of Trusts in the UK
There are several types of trusts, each with different legal and tax implications:
- Bare Trusts
The beneficiary has an immediate and absolute right to the assets.
Commonly used for holding assets for children until they reach 18.
Income and gains are taxed as the beneficiary’s.
- Interest in Possession Trusts
The beneficiary has a right to the income from the trust, but not the capital.
Often used in wills to provide for a surviving spouse.
- Discretionary Trusts
Trustees have discretion over how and when to distribute income or capital.
Useful for protecting assets and providing flexibility.
Subject to specific tax rules and reporting requirements.
- Accumulation and Maintenance Trusts
Allow income to be accumulated within the trust until beneficiaries reach a certain age.
Often used for children or grandchildren.
- Settlor-Interested Trusts
The settlor or their spouse/civil partner can benefit from the trust.
Subject to special tax rules.
How to Set Up a Trust in the UK
Setting up a trust involves several key steps:
- Define Your Objectives
Consider why you want to set up a trust and what you hope to achieve. This will influence the type of trust you choose and how it is structured.
- Choose the Type of Trust
Select the most appropriate trust based on your goals, the nature of the assets, and the needs of the beneficiaries.
- Draft the Trust Deed
This legal document sets out:
- The terms of the trust
- The powers and duties of the trustees
- The identity of the beneficiaries
- How and when assets should be distributed
It is essential to have the trust deed professionally drafted to ensure it is legally valid and tax-efficient.
- Appoint Trustees
Choose individuals or a professional trustee (such as a solicitor or trust company) who are capable, trustworthy, and willing to act. Trustees must act impartially and in accordance with the trust deed.
- Transfer Assets into the Trust
The settlor must legally transfer the chosen assets into the trust. This may involve changing legal ownership of property, transferring shares, or moving funds into a trust account.
- Register the Trust (if required)
Most trusts must be registered with HMRC’s Trust Registration Service (TRS), especially if they:
Have a UK tax liability (e.g. Income Tax, Capital Gains Tax, Inheritance Tax)
Are express trusts (i.e. deliberately created by a settlor)
Registration must be completed within specific timeframes, and trustees must keep the register up to date
Tax Implications of Trusts
Trusts are subject to various taxes, depending on their type and the nature of the assets:
- Income Tax – Trustees may need to pay tax on income generated by the trust.
- Capital Gains Tax (CGT) – Payable on the disposal of trust assets.
- Inheritance Tax (IHT) – May apply when assets are transferred into or out of the trust, or on the 10-year anniversary of the trust.
Some trusts benefit from tax exemptions or reliefs, such as those for vulnerable beneficiaries or charitable trusts. Professional advice is essential to ensure compliance and tax efficiency.
Ongoing Trust Management
Once a trust is established, trustees must:
- Keep accurate records and accounts
- Submit annual tax returns (if required)
- Distribute income or capital in accordance with the trust deed
- Act in the best interests of the beneficiaries
- Keep the Trust Registration Service updated
Trustees can be held personally liable for mismanagement, so it is important they understand their responsibilities and seek legal advice when needed.
Final Thoughts
Trusts are a versatile and effective way to manage, protect, and pass on wealth. However, they are also complex legal structures that require careful planning and expert guidance.
At Blackstone Solicitors, we offer comprehensive trust services, including:
- Advice on the most suitable type of trust
- Drafting trust deeds
- Trustee appointments and support
- Trust registration and compliance
- Tax planning and reporting
Whether you are planning for the future, protecting family assets, or managing an existing trust, our experienced team is here to help.
If you are considering setting up a trust or need advice on trust law, contact Blackstone Solicitors today for a free initial consultation.
How to Contact Our Wills and Probate Solicitors
It is important for you to be well informed about the issues and possible implications of setting up a trust. However, expert legal support is crucial in terms of ensuring your wishes are met as you would want them to be.
To speak to our Wills and Probate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
Comments are closed.
