More wealth than ever before is expected to pass from older generations to younger ones over the coming years in what has become known as ‘The Great Wealth Transfer’. By 2030, an estimated £5.5 trillion is set to change hands, largely driven by the passing on of assets accumulated by the Baby Boomer generation (currently aged around 62-80). Neil Jones, Tax and Estate Planning Specialist at Standard Life, examines the growing role of trusts in helping families pass on wealth efficiently in an increasingly complex tax landscape.
This cohort, considered the wealthiest in UK history, has benefited from favourable economic conditions, including strong house price growth, access to final-salary pensions, and longer life expectancies, allowing assets to grow. As they move into later life or sadly pass away, a significant amount of wealth is being passed on.
While the transfer of assets presents a significant opportunity for younger generations to build and preserve wealth, it also brings heightened risks around inheritance tax (IHT). Without effective planning, a substantial portion of family wealth can be eroded before it even reaches the second and third generations.
The Great Wealth Transfer isn’t unfolding in isolation but against a backdrop of major legislative change and persistent fiscal drag, both of which are expected to push tax receipts sharply higher. Significantly, pensions will be brought into the scope of IHT in April 2027, and the nil rate band will remain frozen until 2031. This combined effect, alongside rising property and investment values, means more families than ever are likely to be affected by IHT.
The OBR has recently revised its forecast for IHT receipts and expects these to reach £14.5bn by the end of 2030/31, an increase of around 67% from the end of the current 2025/26 tax year.
Had the nil‑rate band risen in line with inflation during its freeze, it would now be around £170,000 higher than it is today. Unsurprisingly, clients and advisers are increasingly seeking estate planning solutions to help mitigate these challenges.
Bringing trusts to the fore
There is no single, foolproof way to bring the next generation into conversations about wealth transfer. However, for advisers and their clients exploring the most effective estate planning strategies, trusts should be a central consideration. When used appropriately, trusts provide a powerful and tax‑efficient way to pass wealth down through the generations, offering both structure and flexibility to suit a wide range of family circumstances.
There are three primary types of trust structures that clients should consider: absolute trusts, discretionary trusts, and flexible trusts, although the use of the latter has significantly reduced since 2006 when the tax rules covering them were harmonised with discretionary trusts, which can offer more flexibility.
Each offers a different balance of flexibility and tax implications. While clients can find choosing the most suitable type daunting, advisers, by working through a few key questions, can successfully guide discussions.
The starting point is to establish the client’s priorities: do they need continued access to the funds during their lifetime, or can the assets be fully gifted without retaining any access, for example, when passing money to grandchildren for tuition fees. Advisers should then consider who will be appointed as trustees and identify the intended beneficiaries. Once these questions are answered, it becomes much easier to determine which trust is most appropriate.
Absolute trusts provide certainty over beneficiaries, as those named have an immediate and absolute right to the assets at any time if they’re 18 or over. While they offer less flexibility, they provide clarity and simplicity over who ultimately benefits. These types of trusts are often used to pass on assets to younger family members, as minors are not able to hold the investments personally.
They can be particularly appealing in situations such as grandparents gifting money to grandchildren to help fund education fees. However, with the beneficiary potentially having control of the assets at 18, concerns can arise where they may not be financially mature enough to use them as the settlor intended.
Discretionary trusts offer trustees the highest degree of control. They determine which beneficiaries receive funds, how much they receive, and when any distributions are made. Standard Life’s Flexible Reversionary Plan is an example of this. It provides agreed reversions back to the settlor on set dates in the future, which can be changed by the trustees, whilst allowing funds to be distributed to beneficiaries at any time. The trustees can therefore decide whether assets are used for the settlor’s benefit or passed on to the beneficiaries.
This could be useful for someone who is unsure about gifting and may want to supplement their income in later life, or wants the ability to pay for their care if needed.
Flexible trusts can create an income beneficiary, but as already mentioned, the use of these has declined.
Benefits of trusts for estate planning
Across all solutions, establishing a trust can be an effective way to pass assets down through the generations while retaining control over who benefits and when. The use of bespoke structures such as a loan trust, flexible reversionary trust and discounted gift trust can provide flexibility for the settlor to retain access, which can be valuable in later life.
Assets gifted into a trust typically fall outside of the estate after seven years, and any investment growth within the trust is immediately excluded from the estate. Additionally, individuals can gift up to £331,000 into a trust (£662,000 for couples) without incurring an immediate IHT charge, if combining their nil rate bands with their annual gift exemptions.
Using an investment bond within a trust is a particularly straightforward and tax‑efficient strategy. The bond acts as a wrapper, meaning it does not generate annual interest or dividends, so the trust has no ongoing income or capital gains to report. This structure avoids the more complex trust taxation rules that would otherwise apply if the trust held alternative investments.
Importance of trustees
All trusts rely on effective stewardship and decision‑making from the trustees. A trustee is legally responsible for managing the trust’s assets for the benefit of its beneficiaries. The settlor appoints trustees at the outset and may choose themselves, family members, trusted friends, or professional trustees. This decision is crucial, as the effectiveness of the trust and whether it fulfils the settlor’s intentions depends heavily on the competence of the trustees.
The administrative demands placed on trustees have grown in recent years, and day‑to‑day management can be time‑consuming. For many families, appointing professional trustees can be a sensible way to reduce this burden and ensure the trust is managed with the appropriate level of expertise. The settlor should provide a letter of wishes to the trustees, which, although not legally binding, can help guide the trustees, and this can be particularly valuable for professional trustees who may not appreciate the settlor’s intentions and the family dynamic.
Trust in trusts
As the amount of assets passing down the generations accelerates in the coming years, the role of trusts has arguably never been more relevant.They provide flexibility in the face of changing personal and family circumstances, tax‑efficiency at a time when IHT liabilities are rising, and reassurance that assets will be passed on as intended.
Estate planning can often seem complex and emotionally challenging, particularly when discussions involve multiple family members. This is where advisers have a clear opportunity to support their clients and help ensure a smooth and well-structured transition of assets, demonstrating the value of advice.
About Neil Jones
Neil Jones is a tax and estate planning specialist at Standard Life. Neil has more than 30 years’ experience across adviser firms and product providers and has deep expertise in the areas of international wealth management, tax, estate and retirement planning.
