Trusts often come with a reputation—one that conjures images of sprawling estates, family dynasties, and wealth passed down through generations. But in today’s financial landscape, that perception is increasingly outdated – Trusts are not just for the ultra-wealth! We will explore why trusts are an essential part of estate planning for all sorts of people.
With rising property values, changing family structures, and a growing need to plan around inheritance tax, trusts have become a practical and valuable tool for many more people than you might expect. Whether you want to protect your family, reduce the impact of taxation, or make sure your wishes are carried out after your lifetime, a well-drafted trust can be one of the most effective strategies available.
What is a Trust?
At its core, a trust is a legal arrangement involving three key parties, each with a distinct role.
- The settlor is the person who creates the trust, by transferring assets and setting clear instructions on how those assets should be managed.
- Trustees are those appointed to hold and manage the trust assets, carrying out the settlor’s instructions responsibly.
- Beneficiaries are the individuals who will ultimately benefit from the trust, receiving income or capital as specified.
The relationship between the settlor, trustees, and beneficiaries forms the foundation of every trust and shapes how it operates to meet different needs.
What can a Trust actually do?
Below are a few examples of trusts commonly used in estate planning in England and Wales—all of which can help you structure your assets in a way that protects your loved ones and supports your long-term intentions.
Discretionary Trust – A flexible tool for tax-efficient estate planning
A discretionary trust is a flexible legal arrangement where trustees hold and manage assets for a defined group of potential beneficiaries, without giving any one person a fixed right to the assets. Instead, trustees have full discretion to decide who benefits, when distributions are made, and how much each beneficiary receives.
This flexibility means trustees can adapt to changing circumstances, whether that is shifts in tax law or the evolving needs of beneficiaries. For example, if one beneficiary faces illness or financial difficulty, the trustees can adjust payments to provide extra support. While you can give trustees guidance—such as suggesting equal shares—they have the freedom to act in what they consider the best interests of all beneficiaries.
Discretionary trusts are also powerful tools for inheritance tax planning. As assets in the trust do not belong to any individual beneficiary outright, they are usually excluded from their estate for tax purposes. This allows for more efficient use of tax free allowances and helps protect the assets from unnecessary taxation. Moreover, trust assets are generally safeguarded from legal claims against beneficiaries, such as during divorce or bankruptcy.
It is also worth noting that discretionary trusts created through Wills may become even more common if current government proposals go ahead, particularly those aimed at preserving Agricultural Property Relief and Business Property Relief. These changes could make discretionary trusts a key part of tax efficient planning for families holding substantial business or agricultural assets.
The main trade off for this flexibility is a lack of certainty: no beneficiary has a guaranteed right to inherit. However, since you appoint the trustees, you can choose trusted individuals who will act with your wishes in mind and do their best to honour your intentions.
Life Interest Trusts – Ideal for second marriages, protecting your spouse and children
A life interest trust is a unique trust structure, especially useful for those on their second marriage or civil partnership, where there is a desire to provide for the surviving spouse while protecting the inheritance of children from a previous relationship.
This type of trust grants your spouse or partner (the ‘life tenant’) the right to receive income from the trust assets and to live in any property held by the trust for their lifetime. A key point to note, however, is that, under this structure, your spouse will not have access to the capital itself, which is preserved for your children. When your spouse passes away, the trust capital will pass to your children in accordance with your Will.
The primary benefit of this structure is that it protects your second spouse’s financial needs while ensuring that your children ultimately inherit the assets. On your death, the trust assets pass tax-free to your spouse, meaning no inheritance tax is payable at that point. The assets will remain within the trust during your spouse’s lifetime and only become subject to inheritance tax upon their death.
This arrangement guarantees your partner is cared for while preserving the inheritance of your children—something that leaving assets directly to your spouse cannot ensure, since such assets would then form part of their estate and be subject to their Will.
Notably, it is important to discuss this arrangement with your spouse, as the value of the trust assets will use up their own tax-free allowance upon their death, which could affect their overall inheritance tax position. While unused allowances from the first spouse can usually be transferred, both partners should fully understand these tax implications before proceeding.
Bare trusts – Holding assets for children until the right time
A bare trust is the most straightforward type of trust. The trustees hold the assets on behalf of a single named beneficiary, who becomes entitled to both the income and capital once they attain the age of 18.
This trust structure is most commonly used by parents, grandparents, or those with younger family members, who wish to pass either money or property to a child. The key benefit is certainty: the intended child will fully own the assets upon attaining the age of 18, without delay or dispute.
Bare trusts also offer a degree of flexibility. You can give trustees the authority to use the assets for the child’s benefit before they reach the inheritance age, specifically for purposes you decide—such as funding education, healthcare, wellbeing, or meaningful travel.
What should be carefully considered, however, is the potential risk of leaving substantial assets to a beneficiary who may not yet have the maturity or financial understanding to manage them responsibly. Depending on the value of the trust assets, a beneficiary inheriting a large sum at the age of 18 could find themselves in a vulnerable position—either through mismanagement or external influence—without the life experience to handle such wealth appropriately.
Trusts for vulnerable or disabled persons – Protecting long-term interests
Leaving a significant inheritance to a loved one with a disability or mental health condition can pose serious challenges. In many cases, they may be unable to manage substantial assets independently, or access to funds without structure and support could risk harm to their wellbeing or financial security.
A trust designed for a vulnerable or disabled person is a specialised form of discretionary trust, tailored to protect the long-term interests of individuals who may be unable to manage substantial assets independently.
This trust allows assets to be held and used for the beneficiary’s benefit, without giving them direct control. Instead, trusted individuals act as trustees, ensuring the funds are used wisely and in line with your intentions. Your trustees can be guided by an accompanying letter of wishes, offering practical direction on how you would like the trust to support your loved one after your death—such as covering care costs, housing, or enhancing their quality of life—while maintaining appropriate oversight. When the trust qualifies under certain tax rules, it can also benefit from favourable tax treatment.
As with all discretionary trusts, a potential downside is that you hand over significant decision-making power to the trustees. This makes it especially important to choose trustees you trust implicitly, as their decisions will directly affect your loved one’s wellbeing and financial security.
Declaration of Trust over property – Clarifying ownership and protecting contributions
A declaration of trust is a legal document that records how a property is owned when held by two or more people. This is particularly useful where a property is held as tenants in common—meaning each owner holds a defined share of the property—as it formally recognises each person’s contribution and specifies how those shares will be distributed upon the death of one of the owners.
Notably, a declaration of trust is not suitable in all situations, especially for those who own property as joint tenants. In joint tenancies, the surviving owner automatically inherits the deceased’s share, so a declaration of trust is generally unnecessary.
Beyond property held as tenants in common, declarations of trust can also be used to clarify ownership of other shared assets, such as joint bank accounts or investments. While their applicability to joint accounts is somewhat limited—since such assets typically pass outside of the Will—a declaration of trust can help establish each party’s financial interest, which can be important for tax purposes, inheritance planning, and avoiding disputes.
This trust structure provides legal clarity, and ensures that, both during the owners’ lifetimes and afterwards, everyone’s contributions and rights are clearly documented and respected..
Conclusion: Personalised planning, lasting protection
Trusts are no longer the preserve of the ultra-wealthy. As life becomes more complex—and property values, family dynamics, and tax rules evolve—trusts are proving essential tools for everyday families who want to take control of their estate planning.
At Moore Barlow, we understand every client’s situation is unique. Whether your goal is to protect young beneficiaries, provide for a spouse while safeguarding your children’s inheritance, or manage inheritance tax exposure, our expert, partner-led team is here to help.
With offices across London, Surrey, and Hampshire, we offer a personalised, hands-on approach to clients across the Southeast. If you are considering how a trust could support your long-term plans, we would be delighted to speak with you. Contact us today to arrange an initial conversation.
