Trusts Misconceptions: separating myth from reality

“I don’t have enough wealth to justify a trust.”

Trusts are not reserved for those with significant wealth.

From an inheritance tax perspective, an individual can currently settle up to £325,000 into a discretionary trust every seven years without an immediate inheritance tax charge. For couples, that figure doubles to £650,000. That means trusts can be established tax-efficiently even where estates are modest by today’s standards.

More importantly, tax is only one part of the conversation. Many clients use trusts to protect family wealth over time, rather than just reducing tax.

“Trusts are only about avoiding tax.”

While trusts can deliver tax efficiencies in suitable circumstances, they are rarely created solely for tax reasons.

Often, there is a wider strategic objective. A discretionary trust, for example, can help protect assets from being exposed in a beneficiary’s divorce. It can safeguard funds for young or vulnerable beneficiaries. It can also ensure that a family business remains intact after the death of its founder, rather than being fragmented between multiple heirs.

In some cases, there may even be a tax cost to implementing a trust. Clients proceed because the protection, control, and long-term planning advantages outweigh the cost.

“If I set up a trust, I lose control.”

It is true that once assets are transferred into a trust, they are legally owned by the trustees for the benefit of the beneficiaries. However, that does not mean the person establishing the trust is powerless.

You may act as one of the trustees. You can often retain powers to appoint or remove trustees. The trust deed itself can include carefully drafted provisions that provide comfort and oversight.

The key is thoughtful structuring from the outset, ensuring the balance between effective planning and appropriate control.

“Only family members should act as trustees.”

Family trustees can work well. They understand the dynamics and may act without charge.

However, where multiple generations or different family branches are involved, a professional trustee can provide valuable neutrality. They bring technical expertise, continuity (a corporate trustee does not retire or lose capacity), and a duty to act in accordance with a clearly defined professional standard.

In many cases, a combination of family and professional trustees offers the right blend of personal knowledge and objectivity.

“Once it’s set up, that’s the end of it.”

Trusts are not a “set and forget” arrangement.

They may require registration on the UK Trust Register, ongoing tax compliance, and periodic review, particularly if beneficiaries relocate or legislation changes. Trustees should meet regularly and keep appropriate records. From time to time, supplemental deeds may be required.

This ongoing administration is not a drawback; it is part of ensuring the structure continues to serve its intended purpose.

Trusts are not about complexity for complexity’s sake. Used thoughtfully, they are about protection, stewardship, and long-term planning. The right structure depends entirely on your family, your assets, and your objectives, which is why expert advice is essential.

If you would like to talk through whether a trust, or any other structure, could support your plans for your family, our Private Wealth team would be very happy to have an informal conversation. We are here to help you explore your options and understand what might work best for you.