When do you need a trust? The honest answer (spoiler: you might not)

Trusts are often presented as a cure-all for estate planning. In reality, a trust makes sense for some situations and adds unnecessary complexity to others.

The right approach starts with understanding what a trust actually does, who benefits from it, and what the real costs are.

What a trust actually does

A trust is a legal arrangement that separates the ownership of an asset from the right to benefit from it. You (the settlor) transfer an asset to a trustee, who then holds it for the benefit of named beneficiaries according to rules you set out.

This structure can achieve things a simple will cannot: it can control how and when money is distributed, protect assets from a beneficiary's creditors or former spouse, and create flexibility for changed circumstances.

When a trust is genuinely useful

• You have a vulnerable or young beneficiary and want to protect money until they are old enough or mature enough to manage it themselves
• You are concerned that a beneficiary might face challenges in a divorce or from creditors, and you want to protect their inheritance
• You have a business or significant assets and want control over succession planning
• You want your assets held for multiple generations with flexibility about how they are used
• You have a sizeable estate and want to use a trust for inheritance tax efficiency

When a trust creates more problems than it solves

A trust is not necessary if you simply want to leave money to adult children or a spouse. A straightforward will is simpler, cheaper, and easier to administer.

A trust is also not a substitute for proper financial planning or a shortcut to asset protection. A trust set up for the wrong reasons can be challenged by creditors or the local authority if you have care needs.

The real costs of a trust

• Setup: professional fees to draft a deed of trust, typically £500 to £1,500 depending on complexity
• Administration: ongoing annual accounting, tax returns, and trustee responsibilities
• Complexity: a trust is more difficult to administer than a simple estate, and mistakes can have serious tax consequences
• Ongoing professional fees: tax advice, compliance reviews, potential disputes between trustees and beneficiaries

For many families, the ongoing complexity and cost of administering a trust outweighs the benefits of a simple will with clear instructions.

Questions to ask before setting up a trust

• What specific problem am I trying to solve? Is a trust really the answer, or would a clear will and a named guardian or executor be enough?
• Who will be the trustee? Is the person I have in mind willing and capable of taking on the role?
• How much will it cost to set up and administer, and does that cost justify the benefit?
• What will happen if my circumstances or my beneficiaries' circumstances change? Can the trust be updated or dissolved?
• Have I thought through the tax treatment? Different types of trust have different inheritance tax rules, and a trust set up without professional tax advice can be expensive

The right approach

A specialist estate planner can review your situation and tell you honestly whether a trust is a good fit or unnecessary complexity. Many families do not need one. Those that do benefit significantly from having one properly set up.

The key is not to start with the answer (I need a trust) and work backwards to justify it. Instead, start with the problem you are trying to solve and see what structure actually addresses it.

Simply Estate is an estate planning firm. Our own trust team can give you an honest assessment of whether a trust is right for your situation. Visit our trusts page to book your free review.