Setting Up Family Trust

Creating a lifetime trust - often called a Family Trust is one of the most effective ways to ensure your assets pass to your loved ones and the whole family in a tax-efficient manner. A well-structured trust can also protect family assets from potential claims such as residential care fees or marital disputes, preserving wealth for future generations.

The potential benefits of a family trust include asset protection, tax planning, and ensuring that your assets are managed and distributed according to your wishes. A family trust ensures that your estate is handled as you intend, which can help avoid the time-consuming probate process and provide greater security for all beneficiaries.

What Is a Family Trust?

A family trust is a legal arrangement in which appointed trustees hold and manage assets to create a trust fund for the benefit of named beneficiaries. A family member can be a beneficiary of the trust. A family trust can benefit a defined group, such as an entire family or specific individuals. The settlor can name a designated beneficiary or more than one beneficiary to receive income or assets from the trust. A person, such as a child or a vulnerable individual, can also be named as a beneficiary to address their unique needs. There are different types of family trusts to suit various needs.

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How Family Trusts Work

Assets in a trust can be structured in different ways depending on your family’s needs. You can tailor the trust structure to your circumstances:

Discretionary Trusts : Trustees decide how and when to distribute assets, providing maximum flexibility to respond to changing family needs. Discretionary trusts can benefit more than one beneficiary, allowing trustees to allocate assets among multiple individuals or groups as needed.
Bare Trust : Assets are held by a trustee until a minor beneficiary, often a young person, reaches a certain age (typically 18). Bare trusts are commonly used to pass assets to young people, with the assets set aside managed by the trustee until the beneficiary becomes eligible to receive them directly. The rules for some trusts, such as bare trusts, are specific to England and Wales.

Interest in Possession Trusts : A beneficiary, such as a surviving spouse, receives income from the trust during their lifetime while the capital is preserved for future heirs. This structure ensures ongoing support for the beneficiary and protection of the trust’s assets for the next generation.
Life Interest Trust : Provides income or benefits to a beneficiary, often a surviving spouse, for their lifetime. After their death, the remaining assets are transferred to other designated beneficiaries, balancing the needs of loved ones with estate planning objectives.
Mixed Trust : Combines elements of different trust types for complex family goals.

Our specialists will assess your objectives and recommend the most suitable structure.

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Setting Up a Family Trust: The Trust Deed

The process involves:

Drafting a trust deed, which is a legal document called a trust agreement, that defines the trust’s purpose, beneficiaries, and trustee powers.
Placing assets or transferring assets such as property, investments, or cash into the trust is a key step. These become the assets held in the trust.

3.Appointing trustees family members, trusted friends, or professional advisers who become the legal owners of the assets held in the trust. There must always be at least one trustee for the trust to remain valid. If trustees change, the trust continues as long as there is at least one trustee. The trustees manage and oversee the trust, ensuring the assets are managed according to the trust agreement. The settlor decides how the trust is managed, and trustees must follow the settlor’s wishes as outlined in the trust agreement.

Because trust law and taxation are complex, professional advice is essential to avoid unexpected tax liabilities or administrative issues.

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Tax Considerations

Family trusts can reduce inheritance tax, but transfers are subject to specific rules:

A lifetime transfer into most trusts may incur an IHT charge of 20% on amounts above the £325,000 nil-rate band, unless an exemption applies.
Certain trusts (e.g., bare trusts) may avoid this charge if the settlor survives seven years after the gift.
Ongoing periodic and exit charges (up to 6% of value above the nil-rate band) can apply at 10-year anniversaries or when assets leave the trust.

Beneficiaries may have to pay income tax on income they receive from the trust, and trustees may also need to pay tax on trust income or gains. Different tax rules apply depending on the type of trust, with special tax rules for settlor-interested trusts where the settlor can benefit from the trust assets. Non resident trusts may offer different tax advantages and should be considered as part of your tax planning.

Our advisers can help structure the trust to minimise tax, use available reliefs, and ensure HMRC compliance.

Why Set Up a Family Trust?

Setting up a family trust should align with your financial goals to ensure the structure meets your family’s specific needs.

Families choose trusts for many reasons, including:

Ring-fencing wealth to safeguard assets for future generations. In a family trust, assets are managed by trustees to ensure long-term protection and proper oversight.
Controlling timing of inheritance, ensuring children or grandchildren only inherit when mature enough.
Protecting vulnerable beneficiaries who may need ongoing financial support. Trustees are responsible for managing the trust in the best interests of the beneficiaries, fulfilling their fiduciary duties.
Reducing inheritance tax (IHT) exposure when planned correctly.

Overall, the benefits of family trusts include asset protection, tax efficiency, and peace of mind that your assets are managed according to your wishes for the benefit of your loved ones.

Why Choose HeirPlan

Specialist UK expertise in family, discretionary, and tax-efficient trust planning.
Bespoke strategies aligned with your estate, business interests, and long-term wishes.
End-to-end support, from initial advice to trustee appointment and ongoing administration.

Secure Your Family’s Future

Preserve your wealth and protect your loved ones. Book a free consultation today to discuss the right family trust for your circumstances. Call 0330 057 5902 or request a callback to start your planning.

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Expert Guidance for High Net Worth Individuals

Comprehensive Wealth Analysis

A detailed review of your global assets, liabilities, and family objectives ensures every element of your estate is structured to minimise tax and protect wealth.

Advanced Tax Mitigation Strategies

Utilising trusts, Family Investment Companies, and lifetime gifting, we help reduce exposure to Inheritance Tax (IHT), Capital Gains Tax, and other UK and international taxes.

Tailored Succession Planning

Custom plans ensure seamless wealth transfer to the next generation, balancing fairness, family dynamics, and long-term financial security.

Asset Protection & Risk Management

Strategies such as Asset Protection Trusts safeguard property and investments from creditors, divorce settlements, and market volatility.

Global Estate Coordination

For clients with cross-border assets, we provide integrated planning to manage multi-jurisdictional tax laws and ensure compliance worldwide.