Trusts: the basics

A trust is a legal arrangement where assets are held by trustees for the benefit of one or more beneficiaries. Trusts get a mystical reputation they don't really deserve — they're a tool, and like any tool they suit some jobs better than others.

Common types

• Bare trust: the beneficiary is entitled to the assets absolutely once they reach 18. Simple, transparent, taxed as if the beneficiary owns the assets outright. Often used for grandchildren.
• Discretionary trust: the trustees decide who benefits, when, and how much. Highly flexible, useful for blended families and beneficiaries who might not handle a lump sum well. Charged to IHT every 10 years (max 6% of value above the NRB) and on distributions.
• Interest in possession trust: one beneficiary has the right to income (or use of an asset) for life; others receive the capital eventually.

Where trusts help

• Controlling how and when children or grandchildren access wealth.
• Providing for a vulnerable beneficiary without disturbing means-tested benefits.
• Blended families where you want to provide for a surviving spouse while ultimately protecting assets for children from a previous relationship.
• Holding a life policy so its proceeds pay outside the estate.

Where they don't

Trusts carry setup costs, ongoing accounting and administration, and their own tax regime. For simple family situations, a well-drafted will often does the same job with far less friction. Advice from a solicitor experienced in trust and estate work is essential before setting one up.