Why a Trust is Created: Protecting Your Family’s Future

Protecting your family’s future is one of the most important things you can do — and creating a trust is one of the most effective ways to do it. A trust ensures your assets are managed, protected, and distributed exactly as you wish, both during your lifetime and after you pass away.

A lifetime trust — a legal arrangement established while you’re still alive — gives you control over how your assets are looked after and who benefits from them. England invented trust law over 800 years ago, and today trusts remain one of the most powerful tools available for protecting families. Setting up a trust brings peace of mind and genuine financial security to your loved ones, because as Mike Pugh says, “not losing the family money provides the greatest peace of mind above all else.”

Setting up a trust means your home, savings, and other assets will be managed according to your instructions — securing a safe future for your family against threats like inheritance tax (IHT), care fees, divorce, and probate delays.

Key Takeaways

• Trusts manage and protect assets during your lifetime and beyond — trustees become the legal owners, holding assets for your chosen beneficiaries.
• Assets held in trust are distributed according to your wishes, bypassing probate delays and the asset freeze that follows a death.
• Trusts can provide protection against inheritance tax, care home fees, divorce, and creditor claims.
• Estate planning with trusts is not just for the wealthy — with the average home in England now worth around £290,000, ordinary homeowners are increasingly caught by IHT.
• A properly structured trust ensures your assets are handled exactly as you intend, for the people you choose.

Understanding the Concept of a Trust

A trust is central to effective estate planning and asset protection in England and Wales. It’s a legal arrangement — not a separate legal entity — where one person, the settlor, transfers assets to trustees, who then hold and manage those assets for the benefit of named beneficiaries. The trustees become the legal owners of the trust property, but they must manage it according to the terms of the trust deed, not for their own benefit. This separation of legal ownership (held by the trustees) and beneficial interest (enjoyed by the beneficiaries) is the foundation of English trust law.

Definition of a Trust

A trust is a legal arrangement in which trustees hold and manage assets on behalf of beneficiaries. It begins when a settlor transfers assets — such as a property, savings, or investments — to trustees under a formal trust deed. The trust deed sets out the rules the trustees must follow: who benefits, when, and how. England and Wales have the most developed trust law in the world, with over 800 years of legal history behind it. For more background, you can visit the Law Society’s page on trusts.

Key Parties Involved in a Trust

The three essential roles in any trust are:

• Settlor: The person who creates the trust and transfers assets into it. The settlor decides the terms of the trust deed, including who the beneficiaries are. A settlor can also be one of the trustees, which means they retain day-to-day involvement in managing the trust assets.
• Trustees: The legal owners of the trust assets, responsible for managing and administering them according to the trust deed. A minimum of two trustees is required. Trustees owe fiduciary duties to the beneficiaries — they must act in the beneficiaries’ best interests at all times and cannot profit from their position.
• Beneficiaries: The people who benefit from the trust. In a discretionary trust — by far the most common type, used in approximately 98-99% of family trusts — no beneficiary has an automatic right to income or capital. The trustees decide who receives what, and when. This discretion is precisely what provides the trust’s protective power against threats like care fees, divorce, and creditor claims.

Types of Trusts Available

In England and Wales, trusts are first classified by when they take effect — either as a lifetime trust (created during the settlor’s life) or a will trust (created on death through the settlor’s will). Within those categories, the main types are:

1. Discretionary Trusts: The most common and most protective type. Trustees have absolute discretion over when and how income and capital are distributed among the beneficiaries. No beneficiary has a legal right to demand anything — which is exactly why discretionary trusts protect assets from care fees, divorce, and creditor claims. They can last up to 125 years under current legislation.
2. Interest in Possession Trusts (Life Interest Trusts): A named beneficiary (the life tenant) receives income or the use of trust assets — for example, the right to live in a property — for their lifetime. When the life interest ends, the capital passes to the remainderman (often the children). These are commonly used in will trusts to prevent sideways disinheritance — for instance, ensuring a surviving spouse can live in the family home but the property ultimately passes to the children from a first marriage. Post-March 2006 interest in possession trusts generally fall under the relevant property regime for IHT, unless they qualify as an immediate post-death interest (IPDI) or disabled person’s interest.
3. Bare Trusts: The beneficiary has an absolute right to the capital and income once they reach age 18 (16 in Scotland). The trustee is simply a nominee holding the asset. Bare trusts offer no protection against care fees, divorce, or creditor claims, and they are not IHT-efficient. The beneficiary can collapse the trust entirely once they reach majority — a principle established in the case of Saunders v Vautier.

Understanding these types is essential for effective estate planning. Choosing the right structure ensures your assets are protected and distributed exactly as you intend. A specialist trust practitioner can help you select the right arrangement for your family’s circumstances.

The Importance of Trusts in Estate Planning

Understanding trusts is key to securing your family’s future. Trusts play a vital role in estate planning, offering real, measurable benefits — from reducing the inheritance tax your family pays to ensuring your home and savings reach the right people, at the right time.

Minimising Inheritance Tax

Trusts are one of the most effective tax-efficient planning tools available under UK law. Inheritance tax is charged at 40% on the value of your estate above the nil rate band (NRB) of £325,000 per person — a threshold that has been frozen since 6 April 2009 and is confirmed frozen until at least April 2031. There is also the Residence Nil Rate Band (RNRB) of £175,000 per person, available where a qualifying residential interest is passed to direct descendants — meaning a married couple can potentially shelter up to £1,000,000 from IHT (£650,000 combined NRB plus £350,000 combined RNRB). However, the RNRB tapers away by £1 for every £2 the estate exceeds £2,000,000, and it is not available where property passes to non-direct descendants such as siblings, nieces, nephews, or friends.

With the average home in England now worth around £290,000, many ordinary families are caught by IHT for the first time — something that was unthinkable when the NRB was last set in 2009. By transferring assets into an irrevocable discretionary trust, you can — over time and with proper planning — move assets outside your estate for IHT purposes. For most families placing their home into trust, the value falls within the available NRB, which means there is no entry charge at the time of transfer. Transfers into discretionary trusts are Chargeable Lifetime Transfers (CLTs), not Potentially Exempt Transfers (PETs), so the 7-year rule works differently — but if the settlor survives seven years, the value of the transfer is no longer counted against their NRB, freeing it up for other assets.

Bypassing Probate Delays

One of the most immediate practical benefits of a trust is that assets held within it bypass probate entirely. When someone dies, all sole-name assets are frozen — bank accounts, property, investments — until a Grant of Probate (or Letters of Administration if there is no will) is obtained from the Probate Registry. The full probate process typically takes 3 to 12 months, and if property needs to be sold, it can stretch to 9-18 months or longer.

During this time, your family cannot access those frozen assets. Bills still need paying, mortgages still need servicing, and life goes on — but the money is locked away. It’s also worth noting that a will becomes a public document once the Grant is issued, and creditors are paid first from the estate, followed by IHT, before beneficiaries receive what’s left. Trust assets, by contrast, are owned by the trustees, not the deceased. This means the trustees can act immediately on the settlor’s death, providing funds to the family without any court process or waiting period.

Ensuring Privacy in Financial Matters

A will becomes a public document once a Grant of Probate is issued — anyone can obtain a copy for a small fee. This means the details of your estate, who inherits, and how much they receive are all available to anyone who asks. For families who value privacy, or those with complex family dynamics, this can be deeply unwelcome.

Trust deeds, by contrast, are private documents. While trusts must be registered on HMRC’s Trust Registration Service (TRS) within 90 days of creation — a requirement under the 5th Money Laundering Directive that applies to all UK express trusts including bare trusts — this register is not publicly accessible, unlike Companies House. The terms of your trust, the identity of your beneficiaries, and the value of the assets remain confidential.

Adding trusts to your estate plan makes the transfer of wealth to your family private, efficient, and tax-smart. We can help you set up a trust tailored to your family’s needs and circumstances.

Protecting Vulnerable Beneficiaries with Trusts

Trusts are one of the most effective ways to protect the financial future of those who need it most — including children and individuals with disabilities. By setting up a trust, you ensure these individuals are provided for in a structured, protected way that a simple inheritance through a will cannot achieve.

Trusts for Minors

Under English law, a child under 18 cannot legally hold property or manage significant assets in their own name. A discretionary trust allows parents or grandparents to ensure assets are managed by responsible trustees until the child is mature enough to handle them — and crucially, the trust deed can specify that assets are not distributed until any age the settlor chooses (for example, age 25 or 30), not just at 18. This is a key advantage of a discretionary trust over a bare trust, where the beneficiary can demand the assets at age 18 regardless of their maturity or readiness, as established in Saunders v Vautier.

Key benefits of trusts for minors include:

• Trustees manage assets until the child reaches an age the settlor considers appropriate — not simply 18
• Protecting the child’s inheritance from being squandered, claimed by a future spouse in divorce (with the UK divorce rate at around 42%), or lost to poor financial decisions
• Ensuring structured, responsible trust administration with clear rules set out in the trust deed and guidance provided in a letter of wishes

Trusts for Individuals with Disabilities

Trusts are particularly important for individuals with disabilities. A disabled person’s trust can be structured so that the individual receives support and care without it affecting their entitlement to means-tested state benefits — such as Personal Independence Payment (PIP), Employment and Support Allowance (ESA), or local authority care funding. Without a trust, a direct inheritance could push the individual above the capital threshold (currently £23,250 in England), causing them to lose vital support. A qualifying disabled person’s interest trust also receives favourable IHT treatment, falling outside the standard relevant property regime.

Trusts for individuals with disabilities offer several advantages, including:

1. Ensuring continued care and financial support without jeopardising means-tested benefit eligibility
2. Allowing for flexible trust management — trustees can adapt distributions as the individual’s needs change over time
3. Providing lasting peace of mind for families, knowing that their loved one’s financial future is secure even after the parents or carers are no longer able to help

Understanding the benefits of creating a trust empowers families to make better estate planning decisions. For vulnerable beneficiaries, a trust is not a luxury — it is often the only way to ensure their needs are properly met for the rest of their lives.

Trusts as Asset Protection Tools

Asset protection is a primary reason families create trusts in England and Wales. A properly structured discretionary trust separates legal ownership of assets from the beneficiaries — meaning those assets are no longer “theirs” to be claimed by third parties. This provides a powerful layer of defence against threats like creditor claims, divorce settlements, and care home fees.

Shielding Assets from Creditors

When assets are held in a discretionary trust, they belong to the trustees, not to any individual beneficiary. Because no beneficiary has a legal right to demand anything from a discretionary trust, creditors of a beneficiary generally cannot claim against trust assets. If a beneficiary faces financial difficulties — whether through business debts, bankruptcy, or legal claims — the family wealth held in trust remains protected.

However, it is essential that the trust is established properly and for legitimate reasons, well in advance of any known financial difficulty. A trust set up after debts have arisen, or with the intention of putting assets beyond the reach of known creditors, can be challenged and set aside by the courts under insolvency legislation. As Mike Pugh puts it:

“Plan, don’t panic. The time to protect your assets is years before you need to — not when the wolves are at the door.”

Protecting Assets in Divorce Proceedings

With the UK divorce rate at around 42%, protecting family wealth from being divided in a divorce is a real and pressing concern. When assets are held in a discretionary trust, no beneficiary “owns” them — which means those assets are far harder for a divorcing spouse to claim. As Mike often explains the concept: imagine your child’s ex-spouse’s solicitor asks, “What property do you own?” The answer is: “What house? I don’t own a house.” The trust does.

While family courts in England and Wales have broad discretion and can, in some circumstances, look through trust arrangements, a well-established discretionary trust — created years before any marital breakdown — provides a significantly stronger position than assets held outright. The key is that the trust must be genuine, properly constituted, and not set up purely to defeat a matrimonial claim. For more on how trusts interact with UK asset protection principles, see this overview of UK asset protection trusts.

Protecting Assets from Care Home Fees

Care fees represent one of the biggest financial threats to family wealth in England. Residential care costs currently average £1,100-£1,300 per week, with nursing care at £1,400-£1,500 per week — and significantly more in London and the south east. Between 40,000 and 70,000 homes are sold each year to fund care, with assets depleted down to the £14,250 lower capital threshold before the local authority contributes.

A discretionary trust can protect assets from care fee assessments, provided it is established well in advance and for genuine reasons. The local authority may investigate whether assets were transferred to avoid paying care fees — this is known as “deprivation of assets” — but unlike the 7-year IHT rule, there is no fixed time limit. The longer the gap between the transfer and the need for care, the harder it is for the local authority to argue that avoidance was a significant operative purpose. MP Estate Planning documents nine legitimate reasons for each trust, none of which mention care fees — care fee protection is an ancillary benefit, not the stated purpose.

The critical point is that you must plan years in advance. You cannot transfer assets into a trust after a foreseeable need for care has arisen and expect the trust to protect them.

In summary, trusts are a flexible and powerful way to protect family assets. Effective trust planning — done well in advance and with specialist guidance — ensures that wealth is preserved for the people you intend to benefit, not lost to creditors, former spouses, care fees, or other external threats.

Flexibility and Control Offered by Trusts

Trusts are a cornerstone of estate planning in England and Wales because they offer remarkable flexibility and control. Every family’s circumstances are different, and a well-drafted trust deed can be tailored to accommodate almost any situation — from protecting a family home to managing investment properties or providing for vulnerable relatives.

Customising Terms and Conditions

One of the greatest strengths of a trust is the ability to customise its terms through the trust deed. This flexibility means the settlor decides exactly how assets are managed and distributed — including who the beneficiaries are, at what age they can benefit, and under what circumstances trustees should make distributions.

For example, a settlor can include a letter of wishes alongside the trust deed, providing detailed guidance to the trustees. This might cover how a family business should be run, when children should receive capital, or how the family home should be used. The settlor can also be appointed as one of the trustees — keeping them directly involved in decision-making throughout their lifetime. Mike Pugh’s trusts include what he calls “Standard and Overriding powers” — giving trustees defined powers to manage and distribute assets flexibly, without making the trust revocable. The trust deed can also include clear processes for removing and replacing trustees if circumstances change.

Revocable vs. Irrevocable Trusts

In UK trust law, whether a trust is revocable or irrevocable is a feature of the trust, not its primary classification. Trusts in England and Wales are classified first by when they take effect (lifetime trust vs will trust), and second by how they operate (discretionary, bare, or interest in possession). That said, the revocable vs irrevocable distinction matters enormously for tax and asset protection purposes:

A revocable trust can be amended or cancelled by the settlor during their lifetime. While this offers flexibility, it provides no IHT benefit whatsoever — HMRC treats the assets as still belonging to the settlor (a “settlor-interested” trust), and they remain fully within the estate for inheritance tax. A revocable trust also offers weaker asset protection, because the settlor’s ability to reclaim the assets means creditors and divorcing spouses may be able to argue the trust is a sham.

An irrevocable trust — the standard for serious asset protection and IHT planning — cannot be simply cancelled by the settlor. This is what gives the trust its protective power: the assets genuinely belong to the trustees, not the settlor. An irrevocable discretionary trust provides:

• Protection from care home fees (currently averaging £1,200-£1,500 per week — between 40,000 and 70,000 homes are sold each year to pay for care)
• Protection from IHT at 40% above the nil rate band
• Protection from divorce claims and creditor claims
• The ability to bypass probate delays entirely

The good news is that an irrevocable trust does not mean losing all control. The settlor can be a trustee, a letter of wishes provides guidance to the trustees, and the trust deed can include clear processes for removing and replacing trustees if needed. We can guide you through the different options and help you choose the right structure for your family’s circumstances.

Trusts and Charitable Giving

Trusts play an important role in charitable giving in the UK, allowing you to support your chosen causes in a structured, tax-efficient way while ensuring your donations are used according to your intentions.

Establishing Charitable Trusts

A charitable trust is established to advance a charitable purpose — such as education, the relief of poverty, or the advancement of health. Trust planning for charitable purposes involves defining the trust’s objects, appointing trustees, and identifying the assets that will fund the trust’s activities. Charitable trusts must be registered with the Charity Commission if their annual income exceeds the relevant threshold.

Setting up a charitable trust requires specialist guidance, but the benefits of creating a trust for charitable purposes are significant — including favourable tax treatment and the satisfaction of creating a lasting legacy that will benefit your chosen causes for years or even generations.

Tax Benefits for Charitable Donations

One of the most significant advantages of charitable giving through trusts is the favourable tax treatment under UK law. Charitable trusts and charitable donations can reduce your inheritance tax liability — notably, leaving 10% or more of your net estate to charity reduces the IHT rate on the rest of your estate from 40% to 36%. For more detail on how trusts interact with inheritance tax planning, see our dedicated guide.

Proper trust management is essential to ensure your charitable trust operates effectively and achieves its intended purpose. Understanding the tax benefits and administrative requirements helps you make well-informed decisions about your charitable giving.

The Role of Trusts in Succession Planning

Trusts are an invaluable tool for succession planning in England and Wales — particularly for families with business interests, investment properties, or multi-generational wealth. They provide a structured, legally robust framework for transferring assets and control from one generation to the next, reducing the risk of disputes, tax liabilities, and business disruption.

Without proper succession planning, a death can trigger forced asset sales, family disagreements, and significant inheritance tax charges — up to 40% on everything above the nil rate band of £325,000. A trust addresses all of these risks.

Ensuring Business Continuity

For business owners, trusts are particularly valuable because they separate business ownership from individual estates. By placing business assets or shares into a discretionary trust during the owner’s lifetime, the business can continue to operate seamlessly after the owner’s death — without being frozen during the probate process or broken up to pay IHT.

• Preservation of Business Assets: Trust assets are owned by the trustees, not any individual. This means they cannot be forcibly divided between beneficiaries, sold to pay one heir’s debts, or claimed by a beneficiary’s divorcing spouse.
• Succession Planning Flexibility: A discretionary trust gives the trustees flexibility to decide how and when to involve the next generation — perhaps starting with a management role before transferring financial benefit, rather than handing everything over at once.
• Minimising Disputes: Because the trust deed and letter of wishes set out the settlor’s intentions clearly, and trustees have fiduciary duties to act in beneficiaries’ best interests, trusts significantly reduce the scope for family arguments about who gets what.

Protecting Family Businesses

Family businesses represent more than just financial value — they are part of the family’s identity and legacy. Trusts protect these businesses by providing a clear legal framework for ownership, governance, and succession. As Mike Pugh says, “keeping families wealthy strengthens the country as a whole.”

Trusts can protect family businesses in several ways:

1. Asset Protection: Holding business assets in a discretionary trust shields them from external threats — including creditor claims against individual family members, divorce proceedings, and care fee assessments by local authorities.
2. Tax Efficiency: Proper trust planning can help manage IHT exposure on business assets. From April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) will be capped at 100% for the first £1 million of combined business and agricultural property, with only 50% relief on the excess — making trust-based succession planning even more important for larger businesses. Additionally, from April 2027, inherited pensions will become liable for IHT, adding further complexity to estate planning for business owners.
3. Clear Governance: The trust deed can establish governance rules for the business — specifying who serves as trustees, how decisions are made, and the process for removing or replacing trustees if circumstances change.

By incorporating trusts into their succession planning, families can ensure their businesses continue to thrive — protecting both their financial well-being and their legacy for generations to come.

Common Misconceptions About Trusts

Many people believe trusts are only for the wealthy — an exclusive tool reserved for the rich and famous. The reality is quite different. With the nil rate band frozen at £325,000 since 2009 and the average home in England now worth around £290,000, ordinary homeowners are increasingly exposed to inheritance tax, care fee risk, and probate delays. Trusts are the most effective way to address all three.

Trusts are Only for the Wealthy

This is perhaps the most persistent myth in estate planning — and it simply isn’t true. As Mike Pugh puts it: “Trusts are not just for the rich — they’re for the smart.” If you own a home, have savings, or want to protect your children’s inheritance from divorce or care fees, a trust is relevant to you.

Consider the numbers: a straightforward family home protection trust can cost from as little as £850 — roughly the equivalent of one week’s care home fees. When you compare the cost of a trust to the potential costs of care fees averaging £1,200-£1,500 per week (running until your assets are depleted to £14,250), or an IHT bill of 40% on everything above your nil rate band, it’s one of the most cost-effective forms of financial protection available.

Trusts Eliminate Control Over Assets

Another common concern is that putting assets into a trust means “giving everything away” and losing all control. This is not accurate — particularly with the way modern family trusts are structured in England and Wales.

With a properly drafted irrevocable discretionary trust, the settlor can:

• Be appointed as one of the trustees — giving them a direct role in all decisions about the trust assets
• Continue to live in the family home (subject to the trust deed terms and proper structuring to avoid gift with reservation of benefit issues)
• Provide a detailed letter of wishes to guide the trustees on how assets should be managed and distributed
• Include clear processes in the trust deed for removing and replacing trustees if needed

The table shows that the right type of trust gives you meaningful involvement and control while still providing the asset protection and tax benefits your family needs. The key is specialist guidance — the law, like medicine, is broad. You wouldn’t want your GP doing surgery, and you don’t want a generalist handling your trust.

By clearing up these misconceptions, more families can access the real benefits of trusts. Whether you’re protecting your family home from care fees, shielding your children’s inheritance from divorce, or reducing your IHT exposure, a trust can help you achieve your goals — regardless of the size of your estate.

The Process of Creating a Trust

Creating a trust is one of the most important steps you can take to secure your family’s future. While the process requires specialist knowledge, a good trust practitioner will guide you through every stage — making it straightforward and clear.

Key Steps in Setting Up a Trust

The trust creation process involves several essential steps:

1. Identify your objectives: What threats are you protecting against? IHT? Care fees? Divorce? Probate delays? A comprehensive threat analysis — such as MP Estate Planning’s proprietary 13-point Estate Pro AI assessment — can identify the specific risks to your estate.
2. Choose the right type of trust: Depending on your circumstances, this might be a Family Home Protection Trust (Plus), a Gifted Property Trust (which can remove 50% or more of your home’s value from your estate while starting the 7-year clock), a Settlor Excluded Asset Protection Trust for buy-to-let or investment properties, or a Life Insurance Trust (often set up free of charge to prevent a 40% IHT charge on the payout).
3. Draft the trust deed: This is the formal legal document that sets out the trust’s terms — the trustees, the beneficiaries, the trustee powers, and the rules for managing and distributing the trust assets.
4. Appoint trustees: A minimum of two trustees is required. The settlor can be one of them, which keeps them involved in day-to-day decisions. Up to four trustees can be registered on a property title at the Land Registry.
5. Transfer assets into the trust: For property without a mortgage, this involves a formal transfer of legal title (using a TR1 form at the Land Registry, along with a Form RX1 to place a restriction on the title). For property with a mortgage, a Declaration of Trust transfers the beneficial interest while legal title remains with the mortgagor until the lender’s consent is obtained or the mortgage is paid off — over time, the mortgage goes down while the property value goes up, with all growth accruing inside the trust. This distinction between legal and beneficial ownership is the very foundation of English trust law, developed over 800 years ago.
6. Register the trust: All UK express trusts — including bare trusts — must be registered on HMRC’s Trust Registration Service (TRS) within 90 days of creation, as required by the 5th Money Laundering Directive.
7. Prepare a letter of wishes: This is a non-binding but highly influential document that guides the trustees on how the settlor would like the trust to be managed and the assets distributed.

To learn more about setting up a trust for a child specifically, see our guide on how to start a trust for a child.

Legal Considerations

Getting the legal details right is essential. Key legal aspects of trusts to consider include:

• Gift with Reservation of Benefit (GROB): If you transfer your home into a trust but continue to live in it without proper structuring, HMRC may treat the property as still part of your estate for IHT — even if you survive seven years. Exceptions exist where the settlor pays full market rent, becomes dependent due to illness, or gifts an undivided share where both parties occupy the property. A specialist trust practitioner will structure the arrangement to avoid GROB — for example, through a properly constituted Family Home Protection Trust (Plus) that retains the Residence Nil Rate Band. There is also the Pre-Owned Assets Tax (POAT) to consider — if GROB doesn’t apply but you still benefit from a formerly-owned asset, an annual income tax charge may arise.
• Inheritance tax charges: Transfers into a discretionary trust are Chargeable Lifetime Transfers (CLTs), not Potentially Exempt Transfers (PETs). There is an immediate lifetime charge of 20% on any value above the available nil rate band (£325,000). However, for most families putting their home into trust where the value is within the NRB, there is no entry charge. Ongoing periodic charges (every 10 years) are a maximum of 6% of the value above the NRB — for most family homes below the NRB, this means zero. Exit charges are proportional to the last periodic charge — typically less than 1% and often nil.
• Deprivation of assets: If you need care in the future, the local authority may investigate whether assets were deliberately transferred to avoid paying care fees. If avoidance was a “significant operative purpose,” the authority may treat you as still owning the asset. Unlike the 7-year IHT rule, there is no fixed time limit for deprivation of assets — but the longer the gap between the transfer and the need for care, the harder it is to prove. The trust must be established for genuine, documented reasons — not solely to avoid care costs. MP Estate Planning documents nine legitimate reasons for each trust, with care fee protection as an ancillary benefit rather than the stated purpose.
• Trust taxation: Trustees may need to file a trust tax return (SA900) with HMRC. Trust income is taxed at 45% for non-dividend income and 39.35% for dividends, with the first £1,000 at basic rate. Capital gains tax within the trust is 24% on residential property and 20% on other assets, with the annual exempt amount at half the individual level (currently £1,500). Transferring your main residence into trust normally does not trigger CGT, as principal private residence relief applies at the point of transfer. Holdover relief may also be available when assets are transferred into or out of certain trusts, deferring any immediate CGT charge.

Creating a trust is not something to attempt without specialist guidance. As Mike Pugh says, “the law — like medicine — is broad. You wouldn’t want your GP doing surgery.” Working with a specialist trust practitioner ensures your trust is properly structured, legally robust, and genuinely protective for your family.