Trust issues

4 March, 2018

Trusts have an illustrious history.  They provide a way of managing personal assets for people, and were first used during the Crusades to allow crusaders to entrust their assets to another person in their absence.  They can be created during lifetime or on death, and are used in many different circumstances.   Over time, HMRC have reduced some of the tax benefits of trusts but if used appropriately, trusts are still relevant today.  So, why might you consider creating a trust?  Francesca Sassoli of law firm Cripps Pemberton Greenish explains.



Trusts can be used for many reasons, including:

  • to protect family assets (for example from divorce, bankruptcy and assessment for care home fees)
  • when someone is too young to handle their affairs
  • when someone can’t handle their affairs because they’re incapacitated (special trusts can protect their funds without impacting their entitlement to benefits)

There are different types of trusts which are taxed differently.  In a discretionary trust, trustees (the people managing the trust) decide when and how much to pay to the person who benefits from the trust (the beneficiary).  This allows them to consider the beneficiaries’ personal and financial circumstances and decide whether a distribution is appropriate.  The beneficiary of a discretionary trust has no right to receive property from the trust.

An increasing number of commercial will writers market ‘lifetime protection trusts’ as a magic solution to avoid care home fees and save inheritance tax. It is rarely a good idea to give away control of your home during your lifetime and these arrangements should be approached with extreme caution.  It is important to remember that a trust may not always be appropriate for you. 

Trusts can also protect beneficiaries from themselves, particularly those who make questionable financial decisions.  Trustees can control the beneficiary’s access to funds to ensure they are spent wisely.

A trust allows the person setting it up to control the ultimate destination of their money, which can be particularly useful for couples in their second marriage.  A life interest trust allows the new spouse to benefit from assets during their lifetime while ensuring that the underlying capital passes to the deceased’s children. 

Tax planning

In April 2017, a new inheritance tax relief was introduced called the Residence Nil Rate Band (‘RNRB’), sparking concern over whether wills containing Nil Rate Band Discretionary Trusts (’NRBDT’) would receive the relief. 

Including NRBDTs (or other discretionary trusts) in wills does not necessarily mean RNRB tax relief is not available and NRBDTs still provide many tax advantages. They can maximise tax free allowances available to couples by capturing business and agricultural assets and any unused nil rate bands from previous marriages where a spouse has died. They provide an inheritance tax advantage if the assets in the trust increase more quickly than the NRB increases and they can reduce couples’ estates below the £2.3 million threshold for claiming the RNRB.


It can be difficult to decide who you want to benefit from your will and how much to leave them without knowing how your personal and financial circumstances may change in the future.   Using a discretionary trust gives your trustees flexibility to distribute your estate within two years of your death.  They will be guided by your letter of wishes and can adjust distributions depending on the value of your estate and your relationship with a beneficiary on your death. They can also consider tax planning opportunities, and whether it may preferable to continue to hold the assets on trust for your family.


Trusts require ongoing management. Trustees are required to keep accounts and record their decisions. They must also submit tax returns and inheritance tax accounts when required.  Some trusts are subject to inheritance tax ten year anniversary charges and exit charges on payments from the trust. Professional trustees charge for their services and lay trustees must take professional advice where required, adding to the trust’s running costs.

The future

Trusts can be useful if implemented correctly and in the right circumstances. However, there may be other options available to you.  Corporate structures such as family investment companies are becoming increasingly popular for passing assets to the next generation tax-efficiently. You should seek legal advice before putting any of these arrangements in place to make sure they are appropriate for your circumstances.

 For more information please contact Francesca Sassoli on +44 (0)1892 506 354 or

This article first appeared in Kent Life in March 2018.