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When Oracle billionaire Warren Buffett revealed how his fortune would be passed on, he didn’t simply leave instructions in a Will. Instead, the legendary investor said that almost all of his $100 billion wealth will be placed into a charitable trust overseen by his three children.
Buffett’s estate may be extraordinary, but the planning tool he chose isn’t reserved for billionaires.
Trusts are becoming an increasingly popular part of estate planning in the UK. There are now around 835,000 trusts and estates registered in the UK, with more than 120,000 created in a single year, according to the HM Revenue & Customs.
Whether your goal is helping grandchildren pay for university, supporting children onto the property ladder or simply deciding when loved ones receive an inheritance, a trust could help you retain greater control over what you leave behind.
A trust is a legal arrangement that allows assets to be managed on behalf of chosen beneficiaries according to your wishes. Depending on the type of trust, it can help you decide who benefits, when they benefit and, in some cases, how your assets are used.
Since we link to the trusts explained article, and this stat is similar to the one in that introduction (although not identical) it could be confusing – can we please ensure they’re the same? If you’d like to keep this one, I can change the one in the other article to match.
At a glance:
- Trusts aren’t just for billionaires and can help many families pass on wealth.
- Different types of trust offer different ways to decide who benefits and when.
- Choosing the right trustees is one of the most important decisions you’ll make.
- Professional advice can help ensure a trust fits alongside your wider estate plan.
What does ‘control’ really mean?
For many people, leaving an inheritance isn’t simply about who receives their wealth. It’s about ensuring your wealth supports the people you care about in the way you intended.
A trust is managed by trustees, who look after the assets for the benefit of your chosen beneficiaries according to the instructions set out in the trust deed. Depending on the type of trust, you may be able to decide:
- Who benefits from your wealth
- When they receive it
- Whether they receive income, capital or both
- Whether the money should be used for a particular purpose
- Who makes decisions if circumstances change
Rather than leaving everything outright, a trust allows you to build flexibility into your estate plan while still reflecting your wishes.
How trusts can help manage timing, access and use of wealth
Imagine leaving a substantial inheritance to an 18-year-old grandchild.
Would the timing work for them? Would they benefit more from receiving it when buying their first home or when starting a family of their own? Or would the money have the greatest impact if it helped fund university or supported their own children in years to come?
Trusts allow you to think beyond simply dividing assets equally.
Instead of beneficiaries receiving everything immediately, assets can remain within a trust until certain circumstances are met or trustees decide it’s the right time to make distributions. This can help preserve wealth while allowing it to be used when it’s needed most.
Different types of trust offer different ways of passing on wealth.
An absolute (or bare) trust names the beneficiaries from the outset, with the terms generally unable to be changed later.
A discretionary trust gives trustees greater flexibility to decide who should benefit, how much they receive and when distributions should be made. This can be particularly useful where family circumstances may evolve over time or future generations may eventually benefit.
An interest in possession trust allows one beneficiary to receive income from the trust while preserving the underlying capital for someone else at a later date, often children or grandchildren.
When greater control can make a difference
There’s no single reason why people set up a trust.
For example, a trust might be worth considering if you want to:
- Provide for children or grandchildren over time, rather than through a single inheritance
- Protect assets for future generations
- Support a vulnerable beneficiary
- Balance the needs of a surviving spouse with children from a previous relationship
- Keep greater flexibility if family circumstances change in the future
Every situation is different, which is why trusts aren’t simply about reducing tax. They’re about creating a plan that reflects your family’s circumstances and your long-term wishes.
Choosing the right trustees
Choosing the right trustees is one of the most important decisions you’ll make when setting up a trust. These are the people who will be responsible for carrying out your wishes, potentially for many years to come.
Trustees are legally responsible for managing the trust, acting in the best interests of the beneficiaries, maintaining records and complying with any reporting requirements while following the terms of the trust.
Many people appoint close family members or trusted friends, while others choose professional trustees depending on the complexity of their affairs. The right choice will depend on your circumstances, the needs of your beneficiaries and whether your chosen trustees have the time, confidence and ability to carry out the role.
How an adviser could help
Circumstances are different in every family, which means there’s no one size fits all approach to using trusts. The right solution will depend on your financial situation, your family dynamics and what you want to achieve.
If you’re considering setting up a trust, here are three useful questions to ask your adviser:
- Could a trust help me achieve what I want, or are there other options that might be more suitable?
- Which type of trust best reflects my wishes and my family’s circumstances?
- What are the legal, tax and ongoing responsibilities of setting up and running a trust?
A trust is only one part of a wider estate plan. Reviewing it alongside your Will, gifting strategy and future financial goals can help ensure everything works together.
If you’d like to explore whether a trust could play a role in your plans, a Flying Colours adviser can help you understand how trusts fit alongside your wider estate planning goals.
You can arrange a conversation with an adviser here: https://fcadvice.co.uk/book-an-appointment/
Please note:
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term (minimum of 5 years) and should fit in with your overall risk profile and financial circumstances.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or Will writing. Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
Planning horizons are illustrative and will vary based on individual health, circumstances, and life expectancy.