Trusts and estate planning: Protect and preserve your wealth

When it comes to passing on your wealth, careful use of trusts and estate planning is not just beneficial, it’s essential. Whether your goals include reducing inheritance tax, safeguarding family assets, or simply ensuring that your wealth is passed on according to your wishes, using trusts as part of your estate strategy can offer powerful advantages.

Trusts have long been associated with the ultra-wealthy, but today they’re increasingly used by families from all backgrounds who want to structure their estates with intention and foresight. At a time when personal wealth faces growing exposure to tax, litigation, and generational change, trusts provide both protection and peace of mind.

What is a trust?

A trust is a legal arrangement in which a settlor (you) transfers assets to a trustee, who manages them on behalf of beneficiaries. The trust document outlines the rules governing how and when those assets can be used.

Once assets are transferred into the trust, they are no longer under your direct ownership. In many cases, this means they no longer form part of your estate for inheritance tax (IHT) purposes providing certain conditions are met.

The main components of a trust include:

• Settlor: The person creating the trust.

• Trustee(s): The individuals or professionals responsible for managing the assets.

• Beneficiaries: The people or organisations who will benefit from the trust.

• Trust deed: The legal document that sets out how the trust should be run.

Trusts can hold a wide variety of assets, including cash, shares, property, or even life insurance policies.

Why use a trust in estate planning?

Trusts are a versatile tool that can be tailored to meet specific family and financial objectives. Here are three of the most compelling reasons to include them in your estate plan:

1. Tax efficiency

One of the primary reasons individuals use trusts is to mitigate the impact of inheritance tax. In the UK, IHT is charged at 40% on estates above the nil-rate band (currently £325,000 per person). With proper planning, trusts can help reduce the taxable value of your estate.

For example:

• Discretionary trusts can remove assets from your estate after seven years, assuming no reservation of benefit is retained.

• Life insurance policies written in trust can pay out outside your estate, providing liquidity for beneficiaries without increasing your IHT liability.

However, trusts are not immune to tax. Some are subject to periodic charges or exit charges, so it’s essential to structure them carefully with the right advice.

2. Control and Flexibility

If you're concerned about how beneficiaries might manage a lump sum inheritance especially if they’re young, vulnerable, or inexperienced a trust allows you to retain control.

You can:

• Set age restrictions on access (e.g. funds released at 25 or 30).

• Specify how funds are to be used (e.g. for education, housing, or health).

• Appoint professional trustees to oversee decisions and ensure responsible distribution.

This structure enables you to support your beneficiaries while ensuring your values and intentions are upheld, even after you're gone.

3. Protection from risk

Trusts can also protect family wealth from external threats. For example:

• Divorce settlements: Trusts can prevent inherited wealth from being considered a marital asset.

• Bankruptcy or creditor claims: Assets held in trust may be shielded from creditors of beneficiaries.

• Loss of capacity: If a beneficiary becomes incapacitated, trustees can continue managing the trust in their best interests.

This makes trusts particularly valuable in complex family situations, blended families, or where beneficiaries may face personal or financial challenges.

Common trust structures

Choosing the right type of trust depends on your objectives, your family’s needs, and the types of assets involved. Some of the most frequently used trusts in estate planning include:

Discretionary trusts

These give trustees broad discretion to decide how and when to distribute assets. This flexibility makes them ideal for changing family circumstances or where you want to maintain oversight without giving beneficiaries direct control.

Bare trusts

Simple and commonly used when gifting to minors. The beneficiary has an absolute right to the trust assets at age 18. Useful for early life gifting, such as funding education or first home deposits.

Interest in possession trusts

Provide a named beneficiary (often a spouse) with the right to income generated from the trust during their lifetime, while preserving the capital for other beneficiaries (e.g. children). Often used in second marriages or where different generations need to be considered.

Each trust type has its own tax implications, administrative duties, and strategic uses, hence the importance of professional advice.

Professional guidance is essential

While trusts can offer significant benefits, they also introduce legal, tax, and administrative complexities. A poorly drafted trust or the wrong choice of structure can lead to unintended tax charges or fail to achieve your objectives.

A professional estate planner or financial adviser can help you:

• Choose the most appropriate trust for your needs.

• Draft the trust deed with clarity and precision.

• Understand the tax implications for both the trust and its beneficiaries.

• Coordinate your trust with your will, pensions, and lifetime gifting strategies.

• Appoint suitable trustees and ensure the trust is administered correctly.

Planning for the Future, Today

Trusts are not just for the very wealthy or the highly complex, they are for anyone who wants to be intentional about how their wealth is used, protected, and passed on.

Whether your goals are to reduce inheritance tax, support your children responsibly, or preserve family assets across generations, a well-structured trust can be a cornerstone of your legacy planning.

Looking to use trusts to support your estate plan?

At Oculus wealth, we help clients with trusts and estate planning to help them protect their assets, and provide them with peace of mind for the future.

Book your complementary inheritance tax planning consultation today and take the first step in securing your legacy.