As advisers will know only too well, trusts can be powerful tools for protecting families and managing wealth. But they are often misunderstood. Recent high-profile cases, like Angela Rayner’s Stamp Duty error linked to a minor’s trust, highlight how complex the rules can be. In this overview, Sam Grice, Founder and CEO of Octopus Legacy, reminds us not only what trusts are and who might need them, but also how they can safeguard assets, support vulnerable loved ones, and control inheritance, ensuring advisers and clients alike are fully informed.
Angela Rayner, until recently Deputy Prime Minister and Housing Secretary, resigned last month after underpaying Stamp Duty on a property purchase – a mistake tied up in complex tax rules relating to trusts for under-18s, and property ownership. Her case is a sharp reminder that while trusts are powerful tools for protecting families, they must be fully understood and the rules around taxation and ownership can be intricate.
Although advisers will most likely be very familiar with Trusts and their intricacies, I thought it best to kick off with a guide to what trusts are, how they work, who may need them and why they matter, just so we’re all on the same page.
What is a Trust?
A trust is a way to set aside money or assets to be looked after by a trustee – a person or people you trust, for the benefit of someone else. There are different types of trusts, but they’re often used to protect assets, support loved ones over time, or give you more control over how and when things are passed on. A trust can be set up either during your lifetime (a trust) or on your death within your will (a will trust) which only come into effect after you die.
Where Trusts Make the Biggest Difference
Importantly, trusts are not a one-size-fits-all solution. The right structure depends on the family’s situation, assets and priorities. Common scenarios for will trusts include:
Remarried couples: Life interest trusts can be helpful for married couples, with children from previous relationships, who want to ensure that their surviving partner can benefit from their assets while the partner is alive, before then passing the assets on to their own children upon the survivor’s death. For example, this would allow your surviving spouse/partner to continue to live in your home after you die, even if you’ve gifted your share to your children from a previous marriage.
Delaying inheritance: By default, under English law, children would inherit at 18. Many parents prefer to delay inheritance until children are older and more financially responsible by setting up a trust for them in their wills. Including a trust also allows them to have more of a say around how funds are used – for example, for education or housing.
Vulnerable or disabled loved ones: A trust can be a powerful way of protecting vulnerable people who might not be able to manage funds themselves, allowing you to set aside money for their care, therapy or housing without disrupting their access to disability benefits or other entitlements.
In each of these scenarios, the exact trust structure – whether a Discretionary Trust, Flexible Life Interest Trust, Property Protection Trust, or Vulnerable Persons Trust – is less important than the outcome: making sure assets are preserved and distributed in line with your wishes, whether during their life, or in their legacy after death.
Vulnerable Person’s Will Trusts Explained
A Vulnerable Person’s Will Trust is set up to support someone who is disabled or vulnerable. Instead of giving them an inheritance outright, which might affect their entitlement to benefits, trustees hold and manage the assets for them, ensuring it is always in the beneficiary’s best interests.
Why advisers should recommend trusts for vulnerable or disabled loved ones:
Importantly, trusts can protect benefits. If structured correctly, the trust does not count as direct income or capital in benefit-means assessments.
They can also avoid misuse or loss of the inheritance through poor financial decisions.
Finally, they can give the person creating the trust (known as the settlor) control over who the trustees are, how they manage, what decisions can be taken, often limiting distributions to what’s needed.
Key Considerations When Establishing a Trust
To help avoid the potential pitfalls surrounding trusts – including possible penalties and financial loss – individuals and their advisors can take several concrete steps when establishing a trust.
Firstly, it is important to always involve other trust-specialist advisors when setting up trusts with property involved, especially where beneficiaries are vulnerable or minors. They can help the financial adviser to map out all potential liabilities for the client – not just inheritance tax, but stamp duty, capital gains, care fees, means-tested benefit interactions.
It is also important to ensure that you are setting up the right type of trustfor the purpose (control, protection, flexibility) while clearly documenting the roles (settlor, trustee, beneficiaries).
Crucially, these details should also be reviewed regularly, especially when life changes: children grow up, care needs change, an amendment in tax rules, etc
Trusts are powerful tools – offering protection, flexibility, and control. When done right, trusts deliver peace of mind, protecting the people we love – whilst we’re here and after we’re gone.
Sam Grice is the founder and CEO of Octopus Legacy
