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Set up a Trust

Setting up a trust is a great way to ensure your family is financially comfortable in the future. If you are thinking about ways to ensure your family, or any others you wish to benefit, is looked after when they reach maturity or when you pass away you might be wondering about setting up a trust for your loved ones.

As a way of managing money, land and property trusts can appear complex at first glance and there are indeed many different types of trust to consider. However, trusts are suitable for people from all walks of life.

If you're thinking of setting up a trust, our expert network of wills, trust and probate solicitors is on hand to help you get to grips with the different types of trusts and support you in setting up a trust that will work for your family. For more information and a fixed fee quote for a trust solicitor, get in touch with our legal assessment team today.

What is a trust? 

A trust is a way to manage wealth that you’d like to leave to those you love. They can be used to manage money and assets, including property and land. You can leave them to a family member or anyone else you wish to benefit, such as a friend or charity close to your heart.

What are settlors, trustees, and beneficiaries? 

Assets placed in a trust are managed by the trustee(s). They can be managed by one or more people for the benefit of one person or people known as the beneficiaries.

The person who looks after the assets in atrust is known as the settlor.

• The settlor decides who benefits from a trust and under what conditions 

• The trustee is a person or company appointed by the settlor to manage a trust and its assets. Settlors can appoint themselves to be trustees and can leave a succession plan in place by appointing a settlor to take over when they die

• The beneficiary is someone chosen by the settlor to benefit from a trust. They can receive an income from a trust, inherit assets at a fixed point in time, and be given access to live in a trust property. Beneficiaries can also be trustees 

Who can be a beneficiary of a trust? 

There may be more than one beneficiary in a trust, such as a whole family or the siblings of parents. 

Anyone can be the beneficiary of a trust.

A beneficiary could be:

• A named individual 

• A category of people such as children and their descendants

• Charity/Charities

• An institution or body of people such as a sports club

There are some rules around when a beneficiary can, or can't, benefit from a trust.

It depends on what type of trust has been established, with a bare trust for instance a beneficiary can only benefit when they reach the age of 18.

What are the benefits of setting up a trust?

There are many reasons to set up a trust. Primarily they allow you to leave money to someone who isn’t able to manage their affairs because they are a minor, or someone who has lost the ability to manage their affair because of injury, illness, or old age, they can also be used to support a partner or spouse.

A trust, like a will, can be used to ensure your needs and wants are met if you can no longer look after yourself.

Trusts can also be used as tax reduction tools, too. By taking assets out of your estate you can limit the amount of tax your beneficiaries will have to pay when they take ownership of your assets, this means that more of the wealth that you’ve worked so hard for goes towards your family and loved ones. And a trust can be used to limit the impact of potential care home fees.

Trusts allow you to pass on your wealth to the next generation without the time-consuming nature of going through probate. When going through a probate process expenses need to be paid, however by using a trust the money and assets being passed on are kept private.

Protection is also placed around assets in trusts making it harder for creditors or other parties to take legal action. 

As mentioned, trusts can appoint trustee successors allowing families to plan for future wealth management for the benefit of the next generation. 

Considerations before setting up a trust

There are many things worth mulling over before going ahead and setting up a trust. 

Some of the most common include:

• What taxes you’ll have to pay as a result of setting up a trust

• The effort and costs involved in setting up and running a trust

• Deciding which assets to place in the trust

• Identifying who to make a trustee

• Deciding who will benefit and when

• Evaluating how any changes to legislation will impact the trust

• The needs of beneficiaries, now and in the future

• How the assets will be managed

At the same time as considering a trust, it is typically common practice to review and update your will, as you might decide your beneficiaries’ interests are served by one type of trust over another.

Trusts and taxes

The main tax considerations when setting up a trust are capital gains tax and inheritance tax. You’ll need to look at the Nil Rate Allowance, the threshold at which inheritance tax is payable. The current Nil Rate Allowance is £325,000 for the 2023/24 tax year.

When someone dies and their estate is over the inheritance tax threshold, they might qualify for the Residence Nil Rate Band (RNRB) before any inheritance tax is due. Use the Government's helpful nil rate band calculator to work out whether you qualify.

You can see how the nil rate band thresholds will change up to 2026 here, as the threshold changes each tax year to follow inflation. 

If you transfer assets into your trust worth more than the £325,000 threshold over seven years, the amount above the allowance will be taxed at 20%. And if you pass away within seven years of the transfer over the limit, a further 20% tax payment will be due.

Transfers of assets into a trust is due capital gains tax which is a tax on the profit gained when assets increase in value after being put into or taken out of a trust. For an accurate calculation of your capital gains tax position, you’ll be best placed to seek advice from an accountant.

People with disabilities typically qualify for a higher capital gains tax allowance and a tax rebate to bring the tax paid by the trust in line with that paid by an individual.

How do I set up a trust? 

You can set up a trust in your will or while you are alive, this is known as a lifetime will.

Trusts are complex tools they can be tricky to set up and making mistakes when setting up a trust will have a whole host of consequences. 

Like a will your trust must be meticulously worded to ensure your wishes are fulfilled and legally protected. 

When setting up a trust you will specify the details of who will manage the trust and who will benefit from it. You’ll do this via a declaration of trust.

This document outlines:

• Who will be appointed as trustees

• Who will be the beneficiaries of the trust

• The assets that will be placed in the trust

• How the assets will be managed

• How the benefits will be distributed

It’s a lot to think about and once these decisions have been made, they will have far-reaching consequences. If you need any help and advice making these decisions our specialist trust lawyers can help you set up your trust in a way that will be most beneficial to the people you choose to leave your wealth to.

You can draw up a declaration of trust document yourself, however, this area of the law is complex, and navigating the legal wording as a layperson is full of pitfalls.

What can you put in a trust? 

Any asset you own can be put into a trust you set up, including: 

• Money

• Shares, bonds, and other forms of investment

• Property and land

• Life insurance – your policy can be paid out to your trust

• Personal property – paintings, furniture, jewellery.

Types of trusts

There are many types of trust and which one is right for you will depend on what you want to get out of it. Our wills, trust, and probate lawyers can listen to your needs and advise you on what type of trust will suit you best.

Some of the most common forms of trust include:

• Discretionary trust: Trustees have control over the assets and their profit deciding how and when they are given to beneficiaries. Often grandparents set up discretionary trusts for their grandchildren handing over the reins to their children to decide how and when the grandchildren receive the assets

• Bare trust: This type of trust is the simplest form of trust it allows the beneficiary to access all assets in the trust as soon as they’re 18. Assets are held in a trustee’s name however the beneficiary can access them when they turn 18. Assets in a bare trust always go entirely to the beneficiary, therefore bare trusts are typically used to pass assets onto a young person, commonly a child or grandchild

• Interest in possession: Here beneficiaries can access the profits from assets at any time, however, they cannot control the assets in the trust. The beneficiary has to pay income tax on any money they take from the trust. Often the settlor of the trust will give their partner access during their lifetime, while any assets pass to the settlor’s children when they die

• Mixed trusts: These trusts combine elements from different types of trust. They sometimes give a beneficiary access to half of the fund

• Trust for a vulnerable person: This is when the only beneficiary named in a trust is vulnerable, whether they are disabled or have no relatives, they will pay less tax on the fund

• Non-resident trusts: These kinds of trusts are used when all trustees live overseas. In this case, the beneficiary usually pays less income tax

What is a trust solicitor? 

A trust solicitor is an expert in wills, probate and trusts. They can help advise you on the type of trust that is best for your circumstances.

Why should I use a solicitor to set up a trust?

When setting up a trust you can benefit by using a solicitor to help you ensure your wishes are fulfilled.

A trust solicitor can help you achieve this by making sure the ‘I’s are dotted and the ‘T’s crossed on all the necessary legal documents. This will mean your trust is legally binding and you can pass on your wealth as you wish.

Working with a solicitors can help you work out: 

• Which type of trust suits you

• Which conditions you should include

• Whether you can reduce your tax liabilities

• Whether your trust conflicts with your will

• The powers and responsibilities of trustees

• How to manage trusts for minors 

• How to protect assets from creditors.

How much does a trust cost? 

Many people consider setting up a trust to be just for the wealthy, however, this is not the case.

Trusts can be affordable for people from all backgrounds, and they don’t cost as much as you might think to set up. 

The cost for a licensed solicitor to set up a trust is dependent on many factors including the complexity and specific requirements of the case. On average it is expected to range from £500-£500 but in some cases, it could cost up to £625.

Should you put your house in a trust?

You will need to weigh up a lot of factors before deciding whether to put your house in a trust. You should carefully consider the pros and cons of doing so before making such a monumental decision.

In terms of advantages, it offers asset protection, and the ability to avoid probate and tax benefits, however, there are costs involved when placing your house in a trust, limited flexibility options, complexities to be managed, and a potential loss of control.

If you’re considering putting your home in a trust, speak to a solicitor from our network today to get the advice you need to make an informed decision.

What happens if a trust and a will say different things?

We’ve referred to the need to be careful when setting up a trust to avoid your will and trust contradicting each other.

Clearly when a will and trust say different things confusion will be caused and legal disputes can arise. 

When a will and trust contradict each other a conflict can be created. Typically, a trust takes precedence over a will when there is a conflict between these two legal documents. The reasoning behind this is a trust can be updated many times, while a will is a final document that cannot be changed after death. 

There are some exceptions to the rule, as with most rules in life, for example, if a trust hasn’t been properly funded it cannot distribute assets as set out, in these cases a will can outweigh a trust.

Set up a trust with Lawhive

Our network of solicitors is on call to help you set a trust. Specialist trust solicitors can give you the advice you need to set up and manage a trust, helping you decide which trust is best for you.

Get in touch with us for a free case assessment and begin planning your family’s future.