How Much Money Do You Need to Set up a Trust in the UK?
9 minute read
Date Published - February 6th 2023
Date Updated - August 14th 2024
9 minute read
Date Published - February 6th 2023
Date Updated - August 14th 2024
It’s a common misconception that trusts are only for the wealthy, often used to avoid things like inheritance tax. But, while they can be complicated, trusts can be used by anyone in a multitude of ways to benefit all parties involved.
Trusts come in many shapes and sizes and they’re a flexible way to structure your financial affairs. The law behind them can be complicated, so you must use a solicitor to make sure it is set up correctly based on your individual circumstances and needs.
Originally introduced during the reign of Henry VIII in the 16th century, trusts were invented to solve a gap in the justice system around Wills and how property should be transferred.
Nowadays, trusts are an incredibly useful way of passing on your assets (like property, finances or businesses) whilst still retaining some control over what happens to it (among other benefits, depending on which route you take).
There are only about 200,000 trusts currently active in the UK, but 1/5th of those were set up in the financial year between March 2021-2022 as people have learned about their benefits and realised they’re no longer just for the wealthy.
It’s easy to confuse trusts with trust funds, but they’re not quite the same thing. A trust is the legal framework that allows you to manage assets for someone else’s benefit. In the UK, a trust fund refers to the actual assets - such as money, property, or investments - held within that trust. Essentially, the trust is the structure, and the trust fund is what’s inside.
Additionally, a trust account is a bank account held in trust, which is another component of how these arrangements can be set up. Trusts are often used to protect assets from creditors, family members, or others who might have a claim after the grantor's death. Trust funds, on the other hand, can be used to distribute assets either before or after death, providing financial support for loved ones according to the grantor's wishes.
When you set up a trust, a few key players are involved in making sure it all works as planned. Understanding who these people are and what they do can help you see how a trust operates and why each role is so important.
The Settlor is the person who creates the trust. They decide which assets - like money, property, or investments - will go into the trust and set the rules for how those assets should be managed and distributed. In simple terms, the Settlor is the one who gets everything started, transferring ownership of their assets to the trust while still having a say in how those assets are used. The Settlor’s decisions lay the groundwork for how the trust will function.
Trustees are the people or organisations responsible for managing the trust’s assets according to the Settlor’s instructions. Their job is critical—they need to act in the best interests of the beneficiaries and ensure the trust is handled properly. This means making investment decisions, distributing funds or assets to the beneficiaries, and keeping everything well-documented. Trustees can be family members, friends, professionals like solicitors, or a mix of these.
The Beneficiaries are the ones who benefit from the trust. They could be individuals, like your children or grandchildren, or organisations, such as charities. The trust is set up specifically to provide for these beneficiaries, whether that’s through financial support, property, or other assets. The terms of the trust outline how and when the beneficiaries will receive what’s meant for them—whether it’s at a certain age, after a specific event, or whenever the Trustees decide.
The cost of creating a simple trust is usually in the region of £1000 - £1,500. The exact amount depends on how much legal advice you need and how long it takes your solicitor to draft the very precise wording.
If you come to your Trust Solicitor with a good understanding of the important information you need to set up your trust, the cost of the initial legal advice can often be significantly reduced. This information includes:
If your case is very complex, like if you have a vast collection of assets and/or business interests or any foreign assets that will require tax planning, the cost can be as high as £5,000 - £10,000.
Trusts are most commonly used to protect and control family assets. This is mainly because the assets inside a trust are treated separately from the assets owned by the individual (often for tax purposes), which can be very useful when it comes to things like Inheritance Tax.
Trusts are a great way of ensuring:
In the UK, there are a variety of trusts out there to choose from. Some trusts are set up in a Will so they’ll only take effect after someone dies, and others are set up during their lifetime. Your specialist Trusts Solicitor will help you pick the right type for you based on your needs.
A living trust is set up during a person's lifetime and allows them to manage their assets and property while they are alive. It helps avoid probate and provides clear instructions for distributing assets after death.
A Bare Trust allows the trustee to look after the assets, while the beneficiary can access them anytime if they are over 18 and competent. It is a straightforward trust where the beneficiary has an absolute right to the trust’s assets.
An Interest in Possession Trust lets the beneficiary enjoy any income the trust assets produce immediately. The trustee must pass all income generated from the trust to the beneficiary and cannot access the funds themselves.
In a Discretionary Trust, the trustee has full control over what the beneficiaries can access and when. This includes setting conditions for access and how often payments are made. It offers flexibility but requires careful management.
An Accumulation Trust does not allow beneficiaries immediate access to trust assets that generate income. The trustee decides whether the income goes to the beneficiaries or is reinvested within the trust, providing a way to grow the trust's assets over time.
A Non-resident Trust applies when all beneficiaries live outside the UK, potentially reducing the tax they need to pay on the trust's income. It’s useful for managing assets and income for beneficiaries who are not UK residents.
A Mixed Trust combines elements of different types of trusts based on your needs, such as a blend of Bare Trust and Interest in Possession Trust. It offers tailored solutions to meet specific financial goals and circumstances.
Trusts for vulnerable beneficiaries, such as those who are disabled or vulnerable children, have special tax treatment that is more favourable. These trusts ensure the beneficiary is provided for in a way that meets their specific needs while maximising tax benefits.
Deciding between a living trust and a Will depends on your specific circumstances and what you're looking to achieve. A living trust allows you to manage your assets during your lifetime and can help avoid probate after your death.
A Will, on the other hand, is a legal document that outlines your wishes for asset distribution after your death but does not take effect until then. While a living trust offers more control and flexibility, it can be more complex and sometimes expensive to set up compared to a standard Will.
It’s always important to discuss your options and goals with a specialist solicitor to decide which option is best for you.
Trusts come with a set of rules that can be quite complex, varying depending on the type of trust and its specific purpose. Whether you’re creating a trust or managing one, understanding these rules is crucial.
Setting up a trust involves several steps. While it can be simpler than you might think, we recommend working with a solicitor to ensure everything is done correctly:
Some trusts can be set up in a way that helps beneficiaries keep the state benefits they’re entitled to. For example, a Disabled Persons Trust or a Discretionary Trust, when set up and managed correctly, can ensure that any money paid to the beneficiary doesn’t affect their eligibility for means-tested benefits or other related entitlements.
But there’s a potential downside. If a trust gives specific amounts to beneficiaries who rely on means-tested benefits, it could impact their entitlement. If these payments push their income or savings above the allowed limits, they could end up losing some or all of their benefits.
That’s why it’s really important to get the right advice when setting up a trust. With careful planning, you can help protect the beneficiary’s access to benefits while still providing the financial support the trust is meant to offer.
At GloverPriest, we provide friendly and transparent advice on the best way to organise and manage your assets. Our specialist Trust Solicitors are here to carefully draft the wording of your trust so it accurately reflects your circumstances and needs.
If you would like help with trusts, speak to one of our expert lawyers today - complete our enquiry form here.
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