Trusts
A trust is a legal arrangement in which one or more trustees hold assets on behalf of one or more beneficiaries, under terms set out in a trust deed. Used correctly, a trust can solve a number of well-recognised problems in estate planning — provided the right trust is matched to the right need.
We use trusts where they are the right tool for the job. We do not market trusts as a generic “asset protection” wrapper, nor as a way to avoid foreseeable care fees, nor as a substitute for a properly drafted will. This page sets out the trusts we most commonly use.
When a trust is the right tool
Trusts genuinely help in a number of well-recognised circumstances:
- to ensure a share of the family home passes to your children rather than being absorbed into the survivor’s later remarriage or changed will (sideways disinheritance);
- to provide for a disabled or vulnerable beneficiary without jeopardising their entitlement to means-tested benefits;
- to protect inheritance for children who are minors, or who you want to inherit at a later age;
- to keep flexibility across a class of beneficiaries when their circumstances may change before distribution;
- to keep specific assets out of probate so they pass to your family without delay or grant-related expense;
- to hold a business interest or life policy for the long term.
When a trust is the wrong tool
A trust is not a route to:
- avoid means-tested local authority care charges where care is reasonably foreseeable (deliberate deprivation under the Care Act 2014 and the Social Services and Well-being (Wales) Act 2014);
- shield assets from creditors where insolvency is in prospect (Insolvency Act 1986 sections 339, 340, 342 and 423);
- defeat a claim against your estate under the Inheritance (Provision for Family and Dependants) Act 1975 (the value generally stays in your estate, because you keep the benefit of it);
- escape inheritance tax where the settlor retains the use or benefit of the asset (gift with reservation of benefit, section 102 Finance Act 1986).
If a trust is marketed to you as a single solution to all of the above, our view is that it is probably mis-sold.
The trusts we use
The structure that’s right for you depends on what problem you’re trying to solve. The most common ones are below.
OUR MOST RECOMMENDED
Will trusts — life interest on first death
A will trust takes effect on death under the terms of your will. The most common form for couples is the life interest will trust (an Immediate Post-Death Interest, in tax terminology). On the first spouse’s death, that spouse’s share of the family home passes into the trust. The surviving spouse has the right to occupy the home for life, and the underlying capital is held for the children or other beneficiaries.
It protects against sideways disinheritance: the deceased’s share is fixed for the children regardless of remarriage or any change to the survivor’s will. For means-test purposes, a life interest is not capital that the survivor owns — the survivor never inherited the deceased’s share outright — so on a later financial assessment only the survivor’s own share of the property is in the assessment. The spouse exemption applies to the original gift on first death, and the IPDI rules then treat the trust property as part of the surviving spouse’s estate for IHT.
This is the form of trust planning we most often recommend for couples who own their home together and have children or other intended beneficiaries.
FOR PROBATE AVOIDANCE ONLY
Probate Trust — a lifetime trust
A Probate Trust is a lifetime trust whose purpose is to keep specific assets out of the probate process when you die, so that they pass to your family without the delay and cost of obtaining a grant of probate.
A Probate Trust is not designed to reduce inheritance tax. In every form we offer it, you keep access to and control of what is held in the trust, so the assets remain inside your estate for IHT on death. The route to that outcome differs between the three types below, but the outcome itself does not. We discuss this on the file with every client. If your priority is inheritance tax planning, we use different structures and will explain them separately.
A Probate Trust is suitable where you want your family to receive specific assets quickly after your death without waiting for probate; you accept that the assets remain in your estate for IHT; and the probate-avoidance saving is meaningful relative to the cost of the trust. It is not suitable where you have a reasonable expectation of needing care and support, where you are seeking to shield assets from creditors, or where you are looking to reduce inheritance tax.
We offer three types, described below: the Estate Allocation Trust for the family home, the Investors Living Trust where you want probate solved and nothing else, and the Investors Estate Allocation Trust where there is investment property as well as a home.
PROBATE TRUST — TYPE 1 — FOR THE FAMILY HOME
Estate Allocation Trust (EAT)
When someone dies owning a share of the family home, nothing can be done with that share until the paperwork catches up. The house cannot be sold, transferred or remortgaged while the family waits on a grant. The Estate Allocation Trust is our answer to that, and it is the arrangement we set up most often.
Your home is transferred into a trust that you are a beneficiary of, so nothing changes about living there. Inside it, the value is divided between funds held on different terms: most of it absolutely for you, and one fund on discretionary terms which is capped so that it can never exceed the tax-free threshold. Your trustees hold the legal title, so on a death the property can be dealt with straight away rather than waiting on a grant.
Where a couple set one up together, each of you has your own separate fund inside it rather than the two being pooled, so you can each name different ultimate beneficiaries. That matters a great deal where there are children from an earlier marriage and each of you wants to be certain your own children inherit your share.
That division of funds is deliberate, and it is what keeps the arrangement tax-neutral. Your Residence Nil Rate Band is preserved, where a single discretionary trust holding the house would put it at risk. There is no entry charge when the trust is made, no ten-yearly charge while it runs and no exit charge when assets leave it, because the discretionary fund is capped below the threshold at which those charges arise. And there is no capital gains tax, either on the way in or during the time the home is held there, for as long as it goes on qualifying for main residence relief.
What it does not do is save inheritance tax. You remain a beneficiary of your own trust, so the value stays inside your estate and is taxed there exactly as before. That is the honest position and it is the one we will give you. The point of it is that it solves the probate problem without costing you a single relief on the way.
Which is also why it is not the right answer for everyone. If inheritance tax is already a problem, or is likely to become one, this is the wrong starting point. It saves no tax of its own, and the capped fund inside it uses up nil rate band that other planning may need in order to save tax. Where that is the position we will say so, and look first at the order things should be done in.
Nor does it put your estate beyond a family provision claim. The bare funds are yours outright and form part of your estate in the ordinary way. Only the capped discretionary fund is genuinely settled, and a claimant would have to reach that through the anti-avoidance provision of the Inheritance (Provision for Family and Dependants) Act 1975 rather than simply as part of your estate. That is a narrow technical difference rather than a shelter, and it is not a reason we would ever suggest for setting a trust up.
PROBATE TRUST — TYPE 2
Investors Living Trust (ILT)
Some clients want the probate problem solved and nothing else. No sub-funds, no discretionary layer, no tax structuring. The Investors Living Trust is the plainest way we can do that.
It is a bare trust, which means it is transparent for tax. Whatever is inside it is still treated as yours and taxed as yours, exactly as before. Putting property into an Investors Living Trust changes nothing at all about your tax position, for better or for worse: not your income tax, not your capital gains tax, not your inheritance tax.
What does change is who holds the legal title. Because that sits with your trustees rather than with you personally, the property does not have to wait for a grant of probate before it can be sold, transferred or managed. It suits a family home and investment property equally well, and one trust can hold several properties at once rather than needing a separate arrangement for each.
Its limits follow from its simplicity. Because nothing has actually left your estate, there is no inheritance tax saving and no protection against a care fees assessment. What it removes is delay, cost and administrative difficulty, at the worst possible moment for the people left dealing with it.
PROBATE TRUST — TYPE 3
Investors Estate Allocation Trust (IEAT)
The family home is rarely the whole picture. Where clients also hold a second property, a flat let to tenants or a small portfolio built up over the years, every one of them carries the same problem on death, multiplied.
The Investors Estate Allocation Trust is the two above combined, which is where its name comes from. Your home sits in the Estate Allocation structure and keeps everything that goes with it: the Residence Nil Rate Band preserved, no entry, ten-yearly or exit charges, and no capital gains tax while it qualifies for main residence relief. Your investment properties sit alongside it on the transparent terms of an Investors Living Trust. One arrangement, one set of trustees, however many properties.
Your income arrangements are untouched. Rent continues to be received and taxed exactly as it is now, and nothing about how you hold or run the properties has to change. If you already have an Estate Allocation Trust with us, this is normally an upgrade to what you have rather than starting again.
The honest position is the same as everywhere else on this page. Nothing has left your estate, so this is not an inheritance tax saving. It is a way of holding a whole property portfolio so that your family is not left waiting on probate for any part of it.
Which one applies to you?
Your consultant will go through this with you. Nobody is expected to work it out alone.
| Protective Will Trust | Estate Allocation Trust | Investors Living Trust | Investors Estate Allocation Trust | |
|---|---|---|---|---|
| Takes effect | On death, under your Will | Now, in your lifetime | Now, in your lifetime | Now, in your lifetime |
| Covers the family home | Yes | Yes | Yes | Yes |
| Covers investment property | Yes | No | Yes | Yes |
| Avoids waiting on probate | No | Yes | Yes | Yes |
| Protects your share from sideways disinheritance | Yes | NRB fund only* | Via your Will* | In part* |
| Saves inheritance tax | No | No | No | No |
* Only part of an Estate Allocation Trust is genuinely settled. The nil rate band fund is held on discretionary terms with your own ultimate beneficiaries behind it, so that part is protected. The rest is held absolutely for you and passes under your Will, so the protection there comes from your Will rather than from the trust. An Investors Living Trust gives none of it on its own, though clients who have one almost always have a Protective Will Trust in their Will, which does. An Investors Estate Allocation Trust follows the Estate Allocation position on your home and the Investors Living Trust position on investment property.
No arrangement in this table saves inheritance tax, and we will not tell you otherwise. What they do is decide who ultimately inherits, and spare your family the wait.
Discretionary trusts
Where flexibility matters because beneficiaries’ circumstances may change before distribution; where you want to provide for someone without making the assets directly theirs; or where you want to keep options open across a wider class.
Subject to the relevant property regime — 10-year periodic charges and exit charges — which we model before recommending one.
Vulnerable beneficiary trusts
For a beneficiary with long-term disability, mental incapacity, or in long-term receipt of means-tested benefits. A disabled person’s trust under section 89 IHTA 1984 carries special tax treatment that avoids the discretionary-trust regime.
Drafted in coordination with deputies, attorneys and the wider professional team.
Your letter of wishes
A discretionary fund gives your trustees judgement to exercise. A letter of wishes is how you guide it. It is deliberately not legally binding, so your trustees can respond to circumstances nobody foresaw while still knowing what you would have wanted them to do.
It sits alongside the deed rather than inside it, so you can rewrite it whenever you like without touching the trust or your Will. Most people set out who they would want helped first, at what age, and what they would rather the money was not used for.
We prepare one with you whenever we set up a trust with a discretionary element, and we will review it with you as your circumstances change.
Keeping it current
A trust is not a document you sign once and forget. Beneficiaries grow up, relationships change, and the tax rules move, as the April 2027 pension change shows.
We send an annual reminder to check whether anything needs updating, and our aftercare team is on hand between times. Reviewing a letter of wishes costs nothing and takes a conversation.
Trusts for children’s inheritance
Bare trusts (vesting at 18); bereaved minor’s trusts (s.71A IHTA 1984); and 18-to-25 trusts (s.71D IHTA 1984) for parents who want to delay outright entitlement past 18.
The right structure depends on the size of the gift, who is making it, and the age at which the child should take outright.
Choosing your trustees
Your trustees hold the legal title and make the decisions, so who you appoint matters as much as the trust itself. Most people appoint two, often a mix of family and someone a step removed from the beneficiaries.
Name replacements as well. A trust can run for decades, and the people right for the job today may not be available when it matters.
How we approach trust planning
We start with the problem you’re trying to solve — sideways disinheritance, providing for a vulnerable beneficiary, probate delay, inheritance for minors, business succession — and only then choose the trust. We tell you, on the file, what the chosen trust will and will not do, including its tax and means-test consequences. We will not recommend a trust as a way to avoid foreseeable care fees, and we document the non-care reasons for any lifetime planning we recommend so the rationale is on the file if it is ever queried. For complex tax or trust positions we refer to a STEP-qualified solicitor.
We are members of the Institute of Professional Willwriters and follow its Code of Practice. Our pricing is fixed and is published on the Prices page.
Talk to us
If you would like to think through what, if anything, the right trust looks like for your circumstances, we offer a no-obligation initial conversation.
? 01743 652226
✉ info@clarkewright.co.uk
Trust law and the related tax rules are detailed, and the right structure depends entirely on your own circumstances. We will set out the options that actually apply to you, in writing, before anything is signed.