Setting up a trust is becoming an increasingly popular way for people to safeguard sums of money and other financial assets and can allow individuals to manage, protect and transfer assets according to defined terms.
A trust is a legal arrangement that allows assets such as property, investments, cash or business interests to be held and managed by trustees on behalf of chosen beneficiaries.
There are several types of trusts available in the UK, including discretionary trusts, bare trusts, interest in possession trusts, and other specialist arrangements. The most appropriate structure will depend upon your personal circumstances, financial goals, and the level of control you wish to retain over your assets.
At Elite Law Solicitors, our experienced trust solicitors advise individuals, families, business owners, and high-net-worth clients on establishing trusts that align with their personal circumstances and long-term goals. We provide clear, practical guidance on selecting the most appropriate trust structure, appointing trustees, understanding tax implications, and ensuring full compliance with current legal requirements.
If you are considering setting up a trust in the UK, our experienced trust solicitors can guide you through every stage of the process. Please book a free initial consultation by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or competing our Free Online Enquiry Form.
Frequently Asked Questions about setting up a Trust
Many of our clients often ask the following questions:
- What is the best type of trust for my family?
- How much does it cost to set up a trust?
- Can a trust help reduce inheritance tax?
- Who should act as a trustee?
- What assets can be placed into a trust?
- How are trusts taxed in the UK?
This guide explains the key considerations involved in setting up a trust and how professional legal advice can help you achieve your estate planning and asset protection objectives.
What is a Trust?
A trust is a legally enforceable arrangement where trustees look after assets placed in a trust for the benefit of the trust beneficiaries.
Trusts allow a person to give away assets while still ensuring that there is some control over how those assets are managed and how they are used for the benefit of the beneficiaries.
Trusts can help with estate management and inheritance tax planning, as well as safeguarding assets and ensuring they will be available for future generations.
Trust law is extremely complex, with many different types of trust, selecting the right type of trust and appropriate trustees must be done with great care.
Additionally, the ongoing administration of trusts can be challenging and time-consuming, which is why we would always advise involving experienced trust solicitors in the process of setting up the trust and in its ongoing management. We also recommend that, where appropriate, you seek specialist tax and financial advice.
What is the best type of Trust?
There are many different types of trust, each with different rules and different benefits. Understanding which one is right for you can be difficult, so talking through your options with an experienced trust lawyer is essential.
Some of the most common types of trust include:
Bare trust
This is a very simple trust where an asset belongs to someone but is held in another person’s name to be passed on to the beneficiary when it is appropriate to do so.
This trust is most commonly used to hold assets on behalf of younger beneficiaries, to be passed on to them once they reach the age of majority which in England & Wales is the age of 18.
Interest in possession trust
This is a trust where assets are held for the benefit of one person until a certain event occurs when the trust assets pass to another person or group of people.
Often assets are held for one person to benefit from for their lifetime. The initial beneficiary receives all net income from the trust and can use trust assets, for example living in a property held by the trust, but they cannot ‘access the trust capital or assets which are protected for the person or people who will receive them when the initial beneficiaries interest ends.
This can be useful to provide a home and or income for a beneficiary whilst ensuring that the trust assets eventually pass where the person who set the trust up chooses.
Discretionary trust
This is a trust where the trustees hold the trust assets with the power to choose how and when to use income and or capital for the benefit of any one or more of a group of potential beneficiaries.
The potential beneficiaries can include named individuals, groups of people (such as a person’s descendants) and organisations such as charities.
Setting up a discretionary trust is often done to limit the access of a person deemed irresponsible with money or otherwise unable to handle the responsibilities of an inheritance, so that the assets can be safely preserved and passed on to future generations.
Mixed trusts
Mixing elements of different types of trusts can be a very effective way to arrive at a solution that’s just right for you, though you will need to bear in mind that each element of it may be subject to different tax rules.
There are different rules and tax exemptions if the trust is set up to benefit a vulnerable person or to take care of someone with a disability or medical condition.
A trust can be tailored to meet your specific needs, and how exactly your trust functions is something you will be able to decide with the help of your solicitor.
What types of Trust can your Trust Solicitors set up and advise on?
We can set up and advise about Lifetime Trusts to place assets in now and or to receive assets in the future.
We can set up and advise about Declarations of Trust relating to property and land.
We can prepare and advise about Wills which include Trusts to be set up following your death and which leave assets to Trusts that you or another person have already set up.
We can assist you with ensuring that life insurance policies and death benefits pass to a Trust in an efficient manner.
We can provide ongoing advice to trustees regarding their role as trustees and their options.
We can assist with matters such as changing Trustees, adding new beneficiaries where the Trust permits and updating letters of wishes.
We do not advise about Trusts where the person setting them up lives overseas and or where the assets to be held in Trust are overseas.
We do not advise about Charitable Trusts. We can advise about non-charitable Trusts which include charities or charitable organisations as potential beneficiaries.
What do I need to consider before setting up a Trust?
There are a number of important things to consider before setting up a Trust which include:
- The tax implications of setting up the trust and the ongoing taxes
- The costs and work involved in setting up and running the trust
- Identifying the assets to be placed into the trust
- Deciding who you will appoint as trustees
- Deciding who will benefit from the trust and how and when they will benefit
What are the advantages of a Trust?
There are many advantages to setting up a trust. They offer a level of protection and control of assets that other wealth management and estate planning options often cannot match.
One of the most common reasons for creating a trust is to provide for an individual who is not capable of handling their own financial affairs, whether because they are too young, are incapacitated, or for various reasons cannot be trusted to sensibly take care of the assets the settlor wishes to pass to them.
In all of these circumstances, appointing a trustee to act as a responsible middle-man between settlor and beneficiary can provide valuable peace of mind for the settlor.
A second benefit of creating a trust is the possibilities it grants for establishing a lasting legacy. For those wanting to pass their wealth down through successive generations, trusts allow for arrangements whereby, for example, the settlor’s children can benefit from the income generated, while the assets themselves are held for the grandchildren to come of age. Likewise, trusts allow wealth to be used to support charities, sports teams, and other institutions the settlor may wish to provide for.
A final benefit of setting up a trust is the advantages it provides for managing and mitigating the effects of inheritance tax.
How are Trusts taxed in the UK?
When you transfer assets to a trust during your lifetime you will need to consider inheritance tax and capital gains tax.
If you transfer assets in excess of the Nil Rate Allowance (£325,000) into Trust in any seven year period during your lifetime, the amount in excess of the allowance is subject to inheritance tax at 20%. If you die within seven years of the transfer further inheritance tax at an additional 20% will become due.
A transfer of assets into a trust is a disposal for capital gains tax purposes and therefore if the assets that you are transferring into trust during your lifetime have increased in value since you acquired them that uplift in value will be subject to capital gains tax. We can give you and overview of the capital gains tax position however for a precise calculation you will need to consult an accountant.
On your death any gifts, including transfer of assets into a trust, made in the seven years prior to your death will be taken into account in calculating the inheritance tax due.
Inheritance tax may also be due on assets held in trust when they are transferred out of the trust (exit charges) and on each 10 year anniversary of the trust being set up (periodic charges). This charge is a maximum of 6%.
The income and gains generated by trust assets will belong to the trust and will be taxed at trust rates and not at personal rates.
For more detailed advice regarding capital gains tax, the exit and periodic charges and the ongoing taxation of trusts we recommend that you seek specialist tax advice.
How do I set up a Trust in the UK
Client’s often call us with queries regarding how to set up a trust and the initial steps to be taken. We advise that establishing a trust is not something to be considered lightly or done on a whim. Becoming a trustee is a serious responsibility, and one that should not be granted to someone without forethought and consultation.
Passing assets into a trust is an irrevocable decision and one that should only be done once you are absolutely certain of your decision, and the beneficiaries and terms should both be decided upon carefully.
To set up a lifetime trust you will need to have a trust document drawn up and signed by the person setting the Trust up (the Settlor) and the people being appointed to manage the trust (the Trustees).
We will take your instructions and advise you regarding the different types of trust following which we will prepare the trust document for you to consider. If required, we will also provide a letter of instructions to the present and future Trustees setting out your wishes and aims for the trust.
When the trust document is complete you will need to transfer the assets being placed in the trust to the Trustees. Elite Law can assist with the transfer of property and land to the Trustees.
If money is being transferred to a trust the Trustees will need to open a trust bank account to hold that money. If investments are being transferred to the trust we recommend that the Trustees seek independent tax and financial advice.
Once a lifetime trust has been set up it will need to be registered with HMRC’s Trust Registration Service which must be kept up to date. If required, we can complete that process for you.
Many clients ask about setting up a trust in a Will. To set up a Will trust we you will need a Will which incorporates all of the terms of the trust and, where appropriate, a letter of instructions to the present and future Trustees setting out your wishes and aims. Will trusts only come into existence after the death of the person who made the Will so there are no further formalities for the person making the Will.
Passing assets into a trust during your lifetime is an irrevocable decision, meaning you cannot dissolve the trust and reclaim your assets. It should therefore only be done once you are absolutely certain of your decision, and the trustees, beneficiaries and terms should both be decided upon carefully.
How much does it cost to set up a Trust?
Despite their reputation as being exclusively reserved for the rich, the cost for setting up a trust in the UK is not as high as you may believe.
Typically, our team will charge around £1,500.00 – £2,500.00 plus VAT to provide legal advice on trusts and help with setting up a trust for you.
If the Trustees require ongoing advice and support our ongoing charges will be for time spent at our hourly rate.
It is technically possible to draw up the legal paperwork yourself, but the risks of doing so are exceptionally high. A trust can easily become liable to challenge, and without having the knowledge and experience of a legal professional involved in its creation, it could be found invalid.
The peace of mind that comes with ensuring your wealth is safeguarded for future generations is almost always worth that initial outlay in legal fees.
How we can help with setting up a Trust UK
How we can help with setting up a Trust UKSetting up a trust can be a complicated process. There are numerous types, each with varying rules and benefits.
Understanding which one is right for you can be difficult and daunting prospect, so contacting an appropriately experienced specialist to discuss trust legal services is essential.
Meg Wilton is a Director and the Head of Private Client at Elite Law Solicitors. Meg is an experienced Trust Lawyer with experience in setting up all types of trusts.
As well as office meetings, Meg offers remote meetings to clients via telephone and video conferencing software (Microsoft Teams) so can assist you wherever you are based.
Set up a Trust by booking your FREE initial consultation
If you require legal advice or assistance or have any queries relating to creating a trust, please get in touch with Meg by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or completing our Free Online Enquiry Form.
The content of this article is for general information only. The information in this article is not legal or professional advice. If you require legal or professional advice you should obtain independent expert advice from qualified Private Client solicitors such as those within our firm.
