As rising property values and tightening tax relief rules increase inheritance tax liabilities, more families are turning to trusts to secure their assets.
While these structures offer considerable legal advantages, they also carry obligations that demand careful setup, maintenance, and advice from legal professionals.
Approximate Reading Time: 3 minutes
Topics Discussed:
- How trusts legally reduce inheritance tax exposure for families and business owners.
- Key differences between trust types and the legal implications of each structure.
Why Trusts Are Legally Back in Focus
Recent reforms to inheritance tax reliefs, including caps on agricultural and business property reliefs and the inclusion of most pension pots in taxable estates from April 2027, have made effective estate planning a legal priority.
For landowners, landlords, and entrepreneurs, the risks of unplanned succession now go beyond tax, they can threaten asset retention within the family. Trusts are increasingly used to:
- Protect assets for future generations.
- Retain control over distribution.
- Shield wealth from marital disputes or bankruptcy.
Discretionary trusts, in particular, allow for flexibility and control. Trustees can respond to changing family dynamics, making these arrangements especially popular in more complex estates.
Understanding the Legal Structures: Types of Trusts
Bare Trusts
A bare trust is the simplest legal arrangement. The assets are held for a named beneficiary (often a child) who automatically becomes entitled to the trust at age 18 (16 in Scotland).
Legal characteristics:
- Irrevocable once created.
- No discretion for the trustee.
- Minimal tax shelter for long-term planning.
Discretionary Trusts
A discretionary trust gives trustees full control over when and how to distribute assets. It can protect against:
- Creditor claims.
- Divorcing spouses.
- Unforeseen life changes
Legal and tax features:
- Subject to periodic IHT charges (typically 6% every 10 years) on amounts exceeding the £325,000 nil-rate band.
- Administrative complexity: detailed record-keeping, annual returns, and valuation duties are mandatory.
Despite their intricacies, these trusts are a cornerstone of estate planning for high-net-worth individuals and families with intergenerational wealth concerns.
The Legal Costs and Risks
Creating a trust isn’t simply a paperwork exercise. Legal and tax advice is essential to avoid costly errors.
Set-up costs can range from £2,000 to over £10,000, depending on:
- The complexity of the trust deed.
- Whether land, business shares, or other high-value assets are involved.
- The need for lifetime gifting structures.
Key legal risks:
The 7-year rule still applies—assets moved into trust are exempt from IHT only if the donor survives for seven years after transfer.
Exceeding IHT thresholds can incur unexpected charges.
Failing to comply with HMRC reporting rules may result in penalties.
The Countdown: Why Time Matters
From April 2026, a £1 million cap will apply to agricultural and business property relief per benefactor.
Beyond this limit, a 20% lifetime IHT charge may apply at the point of trust creation.
This looming deadline means farmers and business owners face a narrowing legal window to lock in advantageous terms.
Additionally, proposed reforms to the seven-year rule may tighten gifting timelines further, adding to the urgency of taking action now.
Summary
Trusts remain one of the most effective legal mechanisms to reduce inheritance tax, maintain control over wealth distribution, and protect vulnerable or younger beneficiaries.
But they are not a one-size-fits-all solution.
At Help Me Legal, we advise on the full spectrum of trust structures: from bare to discretionary and beyond.
Our solicitors ensure your trust is set up properly, complies with all legal requirements, and integrates seamlessly with your broader estate plan.
Contact Help Me Legal today at 01772 282768, fill in our contact form here, or reach out via our 24 hour WhatsApp at +447816848188.