Setting up a trust fund for children: Secure their future, your way

When it comes to providing for your children, most parents want more than just financial security, they want to pass on values, offer guidance, and ensure that wealth is used wisely.

A trust fund is a powerful tool for doing just that. And despite the misconception, trusts are no longer exclusive to the ultra-wealthy. Increasingly, middle and high-income families are using them as part of a robust financial strategy to structure, protect, and pass on wealth with intention.

Why consider a trust for your children?

A trust allows you to support your children financially while retaining control over how and when that support is given. Whether you’re planning to fund their university education, help them buy a first home, or provide support through key life stages, a trust offers a framework that ensures your assets are used in the way you intend and even if you’re not around to see it happen.

Key benefits of a trust include:

• Purposeful provision: Allocate funds for specific goals such as education, housing, or life events like weddings or starting a business.

• Ongoing control: Set parameters around when and how your children access funds. This can help instil financial responsibility and protect against misuse.

• Tax efficiency: With careful planning, trusts can be a powerful tool for inheritance tax (IHT) mitigation. Transferring assets into a trust may reduce the value of your estate and help you take advantage of reliefs such as the nil-rate band, the residence nil-rate band, or Business Relief.

Perhaps most importantly, a trust allows you to formalise your intentions in a legally binding structure. It gives you peace of mind that your children will receive support in the right way, at the right time, and under the right conditions.

Choosing the right type of trust

Not all trusts are created equal. Choosing the right structure depends on your goals, your children’s ages, and the level of control you wish to maintain. Here are a few commonly used options:

1. Bare trusts

Bare trusts are simple arrangements where the assets are held in the name of a trustee, but the child is the absolute beneficiary. Once they reach the age of 18, they have full legal entitlement to the assets. These are ideal if you want to make a straightforward gift during your lifetime perhaps to help with university fees or to give them a financial head start.

Pros: Simple, transparent, and tax-efficient for small gifts.
Cons: Lack of ongoing control once the child reaches adulthood.

2. Discretionary trusts

Discretionary trusts provide more flexibility. You appoint a group of potential beneficiaries (usually children or grandchildren), but it’s the trustees who decide when and how money is distributed. This is useful if you want to retain control and adapt the support to future circumstances, for example, ensuring funds are used responsibly or managing uneven needs between siblings.

Pros: Greater control, protection from third-party claims (such as divorce or creditors), and adaptability.
Cons: More complex to administer and may incur higher tax charges if not managed correctly.

3. Interest in possession trusts

These trusts allow one beneficiary to receive income from the trust immediately (for example, a spouse), with the capital passing to another beneficiary (like a child) at a later date. While less commonly used for children, they may form part of wider family estate planning.

Planning considerations

Setting up a trust isn’t just about selecting the right structure, it’s about aligning it with your family’s values and long-term objectives.

Here are a few important points to think about:

• Who will act as trustees? Choose individuals (or a professional trustee) you trust to act impartially and wisely. Their role is central to the success of the trust.

• What conditions do you want to set? For example, you might wish to delay access to funds until your child reaches 25 or graduates from university.

• How will the trust be funded? You could use savings, investments, life insurance, or even business assets, each comes with tax implications that should be carefully reviewed.

• How will the trust interact with your overall estate plan? Coordination is key. A well-structured trust can complement your will, reduce IHT, and ensure your wider wishes are met.

Building a legacy with intention

A trust fund is more than a financial arrangement, it’s an act of foresight and care. It allows you to support your children in a way that reflects your values, while safeguarding the assets you’ve worked hard to build.

For families who want to provide structured support, mitigate tax, and pass on not just wealth but wisdom, a trust can be a cornerstone of intergenerational planning.

Ready to explore how a trust could shape your family’s future?

At Oculus Wealth, we help families put thoughtful, tax-efficient structures in place that reflect their unique goals. Book a complimentary planning session today and take the first step towards securing your legacy.