Inheritance Tax (IHT) has become an increasingly pressing issue for families. Receipts have more than doubled over the past decade to £7.5 billion, a trend that shows no sign of slowing. Future changes to the treatment of agricultural and business property, along with the taxation of inherited pension pots, are set to add almost £2 billion a year to the Exchequer by the end of the decade. Andy Zanelli, Head of Technical Engagement at Aberdeen Adviser, explores how, against this backdrop, advisers are finding clients more motivated than ever to plan for the transfer of wealth.
Yet paradoxically, the use of trusts has been in decline. Since the mid-2000s, when IHT changes began to bring more trusts into the scope of periodic and exit charges, many families and their advisers have stepped back from what was once a central estate planning tool. Complexity around registration and taxation has also been seen as a deterrent. But while the landscape has shifted, the advantages of trusts remain considerable. Used appropriately, they can deliver both tax efficiency and control in a way that outright gifting cannot.
Balancing efficiency with control
Clients have always faced a trade-off when making gifts to future generations. On the one hand, transferring assets during their lifetime reduces the size of the estate, cuts potential IHT liability and allows clients to see the benefit their family derives. On the other hand, outright gifts mean giving up control. Once assets have been transferred, there is no say over how or when they are used.
Trusts address this challenge directly. They allow assets to be removed from the estate while giving clients ongoing influence over how those assets are managed and distributed. The level of control varies by trust type. An absolute trust gives beneficiaries immediate rights, while discretionary and flexible trusts leave decisions to trustees, creating scope to adapt to circumstances such as immaturity, divorce or bankruptcy. In each case, trusts can help preserve family wealth in a structured way while still achieving IHT savings.
A spectrum of solutions
The breadth of trust options makes them highly adaptable to client circumstances. Absolute trusts suit simple family gifting, often to minors, where the priority is to pass on value without immediate IHT charges. Discretionary trusts provide a shield where family situations are complex, protecting beneficiaries who may not yet be ready to manage assets themselves. Flexible trusts occupy the middle ground, balancing certainty with adaptability.
Beyond the trust structure itself, advisers can choose from a range of planning solutions that determine how wealth is transferred. Gift plans are the most straightforward, allowing capital to be placed in trust and excluded from the estate if the settlor survives seven years. Loan plans provide flexibility for clients who want to retain access to capital, as loans can be repaid on demand while investment growth accrues outside the estate. Discounted gift plans go further by creating an immediate IHT saving through underwriting, with clients retaining a fixed lifetime income.
Together, these strategies offer advisers the ability to match planning precisely to a client’s objectives, whether the priority is retaining access, maximising control, or securing the largest possible IHT reduction.
The role of investment wrappers
Tax treatment is another key dimension. Investment bonds, particularly offshore bonds, are often favoured as trust assets because they allow gains to roll up without creating annual reporting requirements for trustees. When distributions are made, assigning bond segments to beneficiaries can be a highly efficient way of shifting value. Where income is a consideration, personal portfolios may also play a role, especially in absolute or flexible trusts where beneficiaries’ own allowances can be used.
In short, the combination of trust type, estate planning solution and investment wrapper gives advisers significant scope to build strategies that are both efficient and flexible.
A time for reappraisal
The decline in the use of trusts has left many families overlooking a vital estate planning tool. While the administrative burden is real, the benefits are often greater than perceived barriers. Trusts reduce estates for IHT purposes, maintain control over how wealth is used, and can smooth intergenerational transfers in ways that outright gifts cannot. For advisers, they also create an opportunity to build deeper relationships across the family, working not only with current clients but with the generations that follow.
Time to Trust again?
IHT is rising and will continue to do so as reforms take effect in the coming years. Clients are rightly seeking solutions that protect wealth and provide certainty. Trusts remain one of the most effective ways to achieve these goals. By integrating trust planning with carefully chosen investment structures and estate planning solutions, advisers can deliver strategies that combine efficiency, flexibility and control. Now is the moment to look again at trusts and ensure they take their rightful place at the centre of estate planning conversations.
About Andy Zanelli
Andy Zanelli is Head of Technical Engagement, Aberdeen Adviser. Andy has over 30 years’ experience in the financial services profession. At Aberdeen, he leads a team of highly experienced Technical Consultants who work with advisers across tax, trust, retirement and estate planning. His focus is on identifying and communicating change and the opportunities this presents for advisers and their clients.
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