6 March 2025
Setting up a trust – what to consider
By Jennifer Taylor, Associate Solicitor, Hayes + Storr.
Setting up a trust can be an effective way to protect your assets and ensure they are distributed according to your wishes. Whether planning for your family’s future, reducing tax liabilities, or safeguarding assets for vulnerable beneficiaries, tailored legal advice is essential.
What is a trust and why set one up?
A trust is a legal arrangement where assets are held by trustees for the benefit of beneficiaries. Trusts provide flexibility in managing and distributing assets and offer benefits such as:
- Protecting assets for future generations
- Reducing exposure to Inheritance Tax (IHT)
- Safeguarding assets for vulnerable or young beneficiaries
- Facilitating charitable giving
- Ensuring assets are used in accordance with your wishes
Types of trusts
Different trusts serve different purposes. Common types include:
- Bare trusts – Assets are held for beneficiaries who are entitled to them outright.
- Discretionary trusts – Trustees decide how and when to distribute assets, offering flexibility.
- Life-interest trusts – A beneficiary receives income during their lifetime, with the capital passing to others later.
- Charitable trusts – Created to support charitable causes, often with tax advantages.
Each type has legal and tax implications, so seeking expert advice is crucial.
Setting up a trust in your will or during your lifetime
A trust can be created either during your lifetime (lifetime trust) or through your will (will trust). Each option has advantages and tax implications:
- Lifetime trusts – Useful for estate planning, as transferring assets more than seven years before death may remove them from IHT calculations. However, these trusts may be subject to periodic and exit charges under the ‘relevant property regime.’ Understanding these taxes is vital before proceeding.
- Will trusts – These come into effect after death and can be structured to take advantage of tax reliefs such as the nil-rate band and residence nil-rate band. They can also protect assets, ensuring fair distribution in blended families by providing for a surviving spouse while preserving inheritance for children.
Careful consideration should be given to the structure of a trust, ensuring it aligns with your long-term plans, tax position, and financial circumstances.
Key considerations and legal requirements
When setting up a trust, your solicitor will need details about:
- The type and value of assets to be placed in the trust
- Intended beneficiaries and their specific needs
- Tax planning goals
- Family dynamics or potential disputes
- Who the trustees should be and their role
- Provisions for vulnerable beneficiaries
- How the trust should be managed and overseen
Many trusts must be registered with the Trust Registration Service (TRS) to comply with legal obligations. Failure to register may result in penalties, so it’s important to determine whether this applies to your trust.
For more information or to discuss setting up a trust, contact Jennifer Taylor in our private client team on 01328 863231 or email: jennifer.taylor@hayes-storr.com.
This article is for general information only and does not constitute legal or professional advice. The law may have changed since publication.
