When Should You Be Talking To Your Clients About Trusts?

For many people, trusts are associated with tax planning or complex family wealth structures. In practice, trusts can be a valuable planning tool in a wide range of circumstances and are often used to provide protection, flexibility and long-term financial support for a range of individuals.

For accountants, financial advisers, investment managers and other professional advisers, recognising situations where a trust may be appropriate can help ensure clients receive timely legal advice and avoid unintended consequences.

Young and vulnerable beneficiaries

Trusts are commonly considered where assets are intended for children, grandchildren or individuals who may be vulnerable due to age, incapacity, illness, financial inexperience or other personal circumstances.

An outright gift to a beneficiary under a will without any trust provisions may not always be the most appropriate solution. A trust can allow assets to be managed by the trustees until the beneficiary reaches an appropriate age or stage in life, while still allowing funds to be used for their benefit.

Depending on the type of trust chosen, trustees can often have flexibility over when and how funds are applied, for example towards further education, housing or general maintenance. This can be particularly helpful where future circumstances are uncertain or where beneficiaries have differing needs.

Specialist legal and tax advice is important, as different types of trusts can have very different legal and tax consequences.

Blended families and second relationships

Modern family arrangements are typically more complicated than a traditional family structure.

Clients who have remarried, are in second relationships or have children from different relationships often wish to balance competing interests within their wills. A common concern is providing security of tenure / financial security for a surviving spouse or partner for the remainder of their life while ensuring that the capital ultimately passes to their children from a previous relationship on that spouse or partner’s later death.

Trusts can be particularly useful in these circumstances in allowing a surviving spouse / partner to continue to enjoy the use / income from the trust assets during their lifetime while preserving capital for future beneficiaries.

Where clients have concerns about how assets will pass on death, wish to provide for certain family members, or want to preserve wealth for future generations, a trust is often an appropriate option to consider.

Clients seeking greater control and asset protection

Many clients are comfortable passing assets outright to family members but remain concerned about how those assets may be managed in future.

Sometimes clients simply recognise that circumstances change. Beneficiaries may marry, have children, experience financial difficulties or develop different needs over time. A trust can provide a degree of flexibility, allowing trustees to respond to changing circumstances while taking account of the settlor's wishes which is often outlined in a separate letter of wishes.

In many cases, clients value the ability to provide guidance and structure without seeking to control beneficiaries indefinitely.

Recipients of Infected Blood Compensation

A particularly important consideration requiring specialist legal advice concerns compensation payable to those infected / affected by the UK infected blood scandal from the UK Infected Blood Compensation Scheme, administered by the Infected Blood Compensation Authority

Compensation awards can be substantial, with some awards amounting to a couple of million pounds depending on the circumstances. The specialist legislative framework governing these payments also creates a number of succession planning and inheritance tax considerations which require to be appropriately addressed.

Although the UK Autumn Budget 2025 introduced welcome changes to improve the inheritance tax treatment of certain compensation payments received by the estates of eligible recipients who had died before the payment was made, particular difficulties can still arise where compensation is received by the recipient during their lifetime and subsequently transferred to another individual, often referred to as a "secondary transfer".

A typical example of this is where compensation is received by one spouse and, either during their lifetime or on their death, this passes to the surviving spouse. The inheritance tax credit equivalent to the value of the compensation payment itself does not automatically transfer between spouses. As a result, careful planning is still required.

Lifetime trusts are not typically an appropriate structure for holding infected blood compensation (due to the way the legislation is structured), but they are critical to the wider planning following the death of an infected blood compensation recipient - particularly where there is a surviving spouse / civil partner. In that scenario, specialist advice is essential and a will with a flexible discretionary trust is recommended as a means of protecting the compensation after the recipients death and eliminating / reducing the IHT that will be due on the later death of the surviving spouse / partner.

Spotting the opportunity

Trusts are not suitable in every situation. They involve ongoing trustee duties and responsibilities, administrative costs (dependent on the type of trust and what the trust owns), and reporting requirements including HMRC's Trust Registration Service, Automatic Exchange of Information obligations and, in some cases, registration on the Register of Persons Holding a Controlled Interest in Land. Trusts (depending on type and value settled) can also give rise to their own tax consequences, including inheritance tax charges on the creation of a trust, periodic and exit charges during the trust's lifetime, and potential income tax and capital gains tax implications, all of which should be carefully considered at the outset.

Personal conversations about estate planning and changing family circumstances can provide an opportunity to explore whether a trust should be considered and whether specialist legal and tax advice is required.

A trust does not need to be complicated. The key is ensuring that clients understand the available options, the associated tax, compliance and admin costs and that any structure is tailored to their particular circumstances and objectives.