Trusts Aren't Just for the Ultra-Wealthy

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When most people hear the word "trust," they picture country estates, family lawyers in wood-panelled offices, and the kind of wealth that comes with a coat of arms. It sounds like something for aristocrats and hedge fund managers — not for someone who owns a few buy-to-lets through a limited company.

But here's the thing: trusts are one of the most practical, widely-used tools in estate planning. They're not exotic. They're not aggressive. And they're definitely not just for the ultra-wealthy.

If you own shares in a property company, a trust might be one of the most important things you never knew you needed.

So what actually is a trust?

Strip away the legal language and a trust is beautifully simple. It's an arrangement where one person holds assets on behalf of someone else.

That's it. That's the core idea.

You hand over ownership of something — shares, money, property — to a person (or people) you choose, and they look after it for the benefit of someone else you choose.

There are three roles in every trust:

• The settlor — the person who creates the trust and puts assets into it. That's you.
• The trustee(s) — the people who manage the assets. Often you and your spouse initially, sometimes with a professional trustee alongside.
• The beneficiary (or beneficiaries) — the people who benefit from the assets. Usually your children or grandchildren.

When you put assets into a trust, you're moving them out of your personal estate. They're no longer "yours" in the eyes of HMRC. And that's where the inheritance tax planning comes in — because assets that aren't in your estate can't be taxed at 40% when you die.

But not all trusts work the same way. The two types you'll hear about most often are bare trusts and discretionary trusts, and they're quite different in how they operate.

Bare trusts — simple and straightforward

A bare trust is the simplest type. The beneficiary has an absolute right to the assets. The trustee is really just holding them in name — they can't decide to give the assets to someone else or change the terms. Once the beneficiary turns 18, they can demand everything.

This makes bare trusts good for situations where you're comfortable with the beneficiary having full control. If you have adult children who you trust completely with their inheritance, a bare trust can be a clean, uncomplicated way to move shares out of your estate.

The tax treatment is relatively straightforward too — the assets are treated as belonging to the beneficiary for most tax purposes.

When bare trusts work well

• Your children are adults and financially responsible
• You're happy for them to have full access to the assets
• You want a simple structure without ongoing complexity

Discretionary trusts — flexibility and control

A discretionary trust is different. Here, the trustees have complete discretion over how the assets are distributed. They decide who gets what, when, and how much. The beneficiaries have no automatic right to anything.

This sounds restrictive, but it's actually the opposite — it gives you enormous flexibility. You can set up a discretionary trust with your children as potential beneficiaries, but the trustees (which might include you, initially) decide how and when the benefits are distributed.

This is particularly useful when:

• Your children are young — you don't want a 19-year-old getting access to shares worth hundreds of thousands of pounds
• You want protection against divorce — assets in a discretionary trust are much harder for a divorcing spouse to claim
• You want protection against creditors — if a beneficiary runs into financial trouble, the trust assets are generally protected
• Your family circumstances might change — the flexibility means trustees can adapt to future situations you can't predict today

The trade-off: 10-year charges and exit charges

Discretionary trusts come with additional tax considerations. There are periodic charges (sometimes called 10-year charges) and exit charges when assets are distributed. These are calculated based on the value of the trust assets and can be complex.

The rates involved are often much lower than people expect — but they do need to be factored in. This is one of those areas where the right answer depends entirely on your specific numbers, the value of the assets, and your broader estate planning goals.

Why trusts matter for property company owners

If you own shares in a property company, trusts become particularly relevant. Here's why.

Your property company shares are sitting in your estate, fully exposed to 40% inheritance tax. Business Property Relief doesn't apply to property investment companies. So the full value of those shares — which might represent years of work building a portfolio — is going to be taxed when you die.

By transferring some or all of those shares into a trust during your lifetime, you can start moving that value out of your estate. If you survive seven years after making the transfer, the value falls completely outside your estate for IHT purposes.

But it's not just about tax. Trusts give you something equally valuable: control.

• Protection against divorce: If your child's marriage breaks down, shares held personally could be split in the settlement. Shares held in a discretionary trust are much better protected.
• Protection against creditors: If a beneficiary faces bankruptcy or legal claims, trust assets are generally shielded.
• Keeping things together while children are young: You can ensure the property company continues to be managed properly, with income distributed gradually rather than everything handed over on an 18th birthday.

Common misconceptions

"Trusts are only worth it for really large estates"

Not true. If your estate is above the nil rate band thresholds — and if you own a property company, it almost certainly is — the IHT savings from a trust can be significant. Even on a relatively modest property company worth £500,000, the potential tax saving is substantial.

"I'll lose control of my assets"

With a discretionary trust, you can be one of the trustees. You're involved in every decision about how the assets are managed and distributed. You're giving up ownership, yes — but not necessarily control.

"It's too complicated and expensive to set up"

A trust does need to be set up properly, and there are ongoing administration requirements. But the cost of setting one up is a fraction of the potential IHT saving. Think of it as an investment in your family's future, not an expense.

The right trust for the right situation

Here's the honest truth: there's no single "best" type of trust. The right structure depends on the value of your property company, the ages of your children, your appetite for complexity, and a dozen other factors that are unique to your family.

What we can say is that for most property company owners, doing nothing is the most expensive option of all. Every year that passes without a plan in place is another year closer to a 40% tax bill that could have been reduced — or in some cases, avoided entirely.