Trusts: 4 ways they can be incorporated into your financial plan


Trusts can be useful financial tools in certain situations, but they can seem complex. Here, we explain what a trust is and some of the circumstances where using one may be appropriate.

What is a trust?

A trust allows you to give rights to hold assets to one party, known as the trustee, for the benefit of another, known as the beneficiary. It provides legal protection and helps ensures your wishes are carried out. You can place certain conditions on assets within trusts that the trustee must adhere to.

There are several different types of trusts, which differ slightly in the way they are used. The simplest of trusts is known as a bare trust. This is where the beneficiary has the absolute right to the assets within the trusts and the income they may generate. In contrast, a discretionary trust, for example, gives trustees more discretion in how the income and capital are used. The trusts must still be run for the benefit of the beneficiary, but the trustee has greater control.

There are many reasons why a trust may be used, including:

1. Passing on wealth to younger loved ones

If you plan to leave some of your wealth to younger family members, a trust can be an excellent way to do it.

Assets can be placed within a trust which the child will then gain access to when you state, when they turn 18, for example. It’s also possible to allow trustees to access income or capital before this point if you set this out when setting up a trust. You may, for instance, want the trustee to be able to access the assets to pay for school fees or further education. Placing the money in trust allows you to place conditions on how the assets will be used and rest assured that the trustee must act in the best interests of the child.

Trusts can be used in a similar way to provide for vulnerable adults too, giving you peace of mind about their future.

2. Preserving your legacy

Do you have a clear idea of how you’d like the wealth accumulated over your lifetime to be used? Are you hoping that it’ll support future generations? Perhaps you want to ensure a child benefits from the wealth, even if their marriage breaks down.

Certain types of trusts can protect assets in some circumstances, such as when a divorce is being filed or creditors are assessing wealth. As a result, effectively using a trust can help you preserve your wealth and what you leave behind for future generations. If you have specific concerns, please get in touch to discuss whether a trust is the right vehicle for you to use.

3. Moving money outside of your estate for Inheritance Tax purposes

If your estate could be liable for Inheritance Tax (IHT) purposes, a trust can help you reduce the amount owed. Using a trust can effectively take some of your assets outside of your estate, meaning they won’t count towards IHT thresholds. It can be a way to pass more of your wealth on to your loved ones when you pass away.

It’s even possible to still receive an income from assets placed within a trust if needed. The income taken would count as income, and, therefore, may be liable for Income Tax.

4. Making provisions for care

Care is becoming an increasing concern for retirees. We’re living longer and it’s more likely that you’ll need some form of care or support in old age. It’s prudent to think about how you’d pay for care if it were needed.

In some cases, you may need help but still have the capacity and will to make decisions. In others, someone you trust may be better placed to make decisions for you. A trust can provide a solution if this is the case. You can think of a trust as a way to give someone the money you’ve set aside to pay for care if it’s needed. However, by using a trust you can set out certain wishes and the trustee must act in your best interests, giving you peace of mind.

Making trusts part of your financial plan

Trusts can be a useful tool when creating a financial plan that suits you. However, they can be complex. Once set up, it can be incredibly difficult or impossible to reverse decisions. As a result, it’s crucial that you look at the pros and cons of using a trust before you proceed. You should also look at the alternatives available and choose the option that suits you best.

This is something we can help with. If you have a financial concern that you think using a trust could solve, we’ll help you understand this route. We’re here to go through your options and help you decide if using a trust is right for you.

Please note: The Financial Conduct Authority does not regulate tax and estate planning.