If you’re planning ahead for your family’s future, you’ve probably come across the term “lifetime trust” and wondered whether you actually need one.
A lifetime trust (sometimes called an inter vivos trust) is a legal arrangement you set up while you’re still alive, rather than one created through your will after your death. You transfer assets, such as property, investments or cash, into the trust. A group of trustees then manage those assets on behalf of the people you want to benefit.
How Does a Lifetime Trust Work?
A trust has three key roles to function effectively:
- The settlor: the person who establishes the trust and transfers assets to it.
- Trustees: the people (or a professional trustee, such as a solicitor) who legally own and manage the trust’s assets.
- Beneficiaries: the people the trust is set up to benefit.
Once assets go into the trust, the trustees become the legal owners, while the beneficiaries hold what’s known as the “beneficial interest”. It’s essentially the right to benefit from those assets.
The trustees manage everything in line with the terms you’ve set out, and beneficiaries receive assets or income according to those terms, whether that’s straight away, at a particular age, or at the trustees’ discretion.
What is the Purpose of a Lifetime Trust?
There’s rarely just one sole reason for setting up a lifetime trust. Some people use it as part of their estate planning. While others simply want greater control over how their assets are managed and passed on both during their life and after their death.
Lifetime trust can offer a solutions, such as:
- To protect family wealth for future generations
- To protect assets such as money, property and investments
- To provide for children or grandchildren in a structured way
- To look after a vulnerable beneficiary who may not be able to manage assets themselves
- To hold assets for someone who isn’t yet ready to inherit (a child or young adult, for example)
- To plan ahead in case of future incapacity
- To keep some control over how and when assets are used, even after they’ve been passed on
- To reduce delays and complications after death
- Act as part of wider inheritance tax or estate planning
- In some cases, act as part of business succession planning
Because a lifetime trust can be tailored to your individual circumstances, it’s often a suitable option where a will may not provide the sufficient level of protection you require.
What Can Be Put Into a Trust?
In principle, most types of asset can be placed into a trust, including:
- Property
- Cash
- Investments and shares
- Land
- Life insurance policies
- Business assets, in certain circumstances
Not every asset is suitable for every type of trust, and transferring ownership can have legal and tax consequences.
For example, moving property or investments into a trust may trigger Inheritance Tax, Capital Gains Tax, or Stamp Duty Land Tax, depending on the circumstances.
What Are the Different Types of Trust?
There isn’t a single one-size-fits-all trust. The right structure depends on what you’re trying to achieve. Common types include:
- Bare trust: the beneficiary has an absolute right to the assets and income, usually used for straightforward gifts.
- Interest in possession trust: a beneficiary is entitled to income from the trust (for example, from investments), while the capital is preserved for others further down the line.
- Discretionary trust: trustees can choose how and when income or capital is distributed among a group of beneficiaries, which suits situations where circumstances might change over time.
- Disabled person’s trust: designed to support a beneficiary with a disability, often with certain tax advantages attached.
- Bereaved minor’s trust: usually created through a will rather than during your lifetime, but worth knowing about if you’re considering trusts as part of wider estate planning.
Each comes with different tax treatment and levels of flexibility, so it’s rarely a case of picking the one that sounds best. Often it’s about matching the structure to your family’s situation.
Can You Put Your House Into a Trust?
This is one of the questions we’re asked most often, and the honest answer is: yes, in some circumstances. Despite this, it’s rarely as simple as it might first appear.
People often consider it to:
- Keep the property outside their estate for probate purposes
- Protect it for children or other beneficiaries
- Retain some control over how the property is eventually used or sold
However, there are things to weigh up carefully first. Putting a house into a trust can have tax implications, and if there’s an outstanding mortgage, this can complicate matters considerably.
There’s also a persistent myth that putting your home into a trust is a reliable way to avoid care home fees. In reality, local authorities can and do look closely at transfers made with the intention of avoiding care costs, so this is very much not a guaranteed strategy.
In these areas, having proper legal advice matters a great deal, both to make sure the trust does what you want and to avoid unintended consequences.
Do Trusts Avoid Probate?
Generally, assets that are already held within a trust don’t form part of your personal estate when you die. This usually means they aren’t subject to probate. That can mean beneficiaries access those particular assets more quickly, without the wait that probate often involves.
That said, this only applies to assets actually held in the trust. Anything you own outside of it will typically still need to go through probate in the normal way. Therefore, a lifetime trust isn’t a way of avoiding the probate process entirely, just for the assets within it.
Do Lifetime Trusts Reduce Inheritance Tax?
Sometimes. Though this is an area where it’s easy to oversimplify, it’s worth being careful. Whether a trust reduces inheritance tax depends heavily on the type of trust, how it’s structured, and the value of the assets involved.
A few things to be aware of:
- The “seven-year rule” can apply to gifts made into trust, affecting whether the value is still counted as part of your estate if you die within seven years.
- Some transfers into trust are treated as Chargeable Lifetime Transfers, which can have immediate tax consequences.
- Certain trusts are subject to periodic charges (broadly, every ten years) and exit charges when assets leave the trust.
Because of this, a trust should never be set up purely as a tax-avoidance measure. It needs to work for your family’s actual circumstances, with any tax benefits considered alongside, not instead of, your wider goals. Our lifetime tax planning service can help you weigh this up properly.
Lifetime Trusts vs Wills
Many people find that a will and a lifetime trust work well together, each covering a different part of their overall estate plan, rather than one simply replacing the other.
However, if you’re choosing between one or the other, this table outlines the key differences:
| Lifetime Trust | Will |
| Takes effect during your lifetime | Takes effect after death |
| Trustees manage assets | Executors administer the estate |
| Can avoid probate for trust assets | Usually requires probate |
| Can protect vulnerable beneficiaries on an ongoing basis | Distributes the estate after death |
| More administration | Simpler to create |
| Ongoing trustee duties | No ongoing management required |
If you’re not sure which route makes sense for you, our will writing and review service is a good place to start, and we can talk through whether a lifetime trust should form part of the wider plan.
If you’re also setting up a trust as well as a will, see our guide on what to consider when making a will for guidance.
What Are the Advantages of a Lifetime Trust?
- Greater control over how and when assets are used
- Added asset protection
- A degree of privacy, since trusts don’t go through the public probate process in the same way a will does
- The ability to avoid probate for the assets held in the trust
- Flexibility to adapt estate planning to specific family circumstances
- Ongoing protection for vulnerable beneficiaries
- Potential tax planning benefits in some situations
What Are the Disadvantages of a Lifetime Trust?
- Trusts can be legally complex to set up correctly
- There are legal costs involved in establishing one
- Trustees take on real responsibilities and duties
- Ongoing administration is required, sometimes for many years
- Trusts often come with their own tax reporting requirements
- Depending on the trust type, there may be inheritance tax charges to consider
- As settlor, you lose direct ownership of the assets you place into the trust
Can a Lifetime Trust Be Changed or Cancelled?
This largely depends on whether the trust is revocable or irrevocable. Most trusts set up in the UK are irrevocable once established, meaning they can be difficult to unwind or change significantly.
Trustees generally have defined powers to manage the trust within its terms, but making fundamental changes to the trust itself, such as who benefits, often requires either specific provisions or, in some cases, court involvement. This is another reason it’s worth getting the trust right from the start, rather than assuming it can be adjusted later.
Do I Need a Solicitor to Set Up a Lifetime Trust?
Although it’s possible to draft a trust yourself, we’d urge real caution here. Trusts involve legal and tax rules that are easy to get wrong, and mistakes can be costly, both in terms of unexpected tax bills and in the trust not actually doing what you intended.
Our solicitors can help you:
- Avoid technical drafting errors that could undermine the trust
- Understand the tax consequences before you commit
- Choose suitable trustees
- Make sure the trust genuinely reflects your wishes, now and as circumstances change
If you’re weighing up whether a lifetime trust is the right move, the legal team at BGW Solicitors can talk you through your options.
Is a Trust Right for Me?
Rather than comparing a trust with other estate planning tools, it’s more useful to think about whether it suits your situation. In essence, a trust tends to make the most sense for people who:
- Have significant assets they want to plan around
- Want to protect a vulnerable beneficiary over the long term
- Want more ongoing control over how their assets are used
- Are looking to plan their estate efficiently, as part of a wider strategy
They’re not the right fit for everyone. For many families, a well-drafted will could be all that’s needed. However, the important part is getting advice that’s specific to your circumstances, rather than assuming a trust is automatically the best option.
Speak to BGW Solicitors About Lifetime Trusts
Our Probate Department is headed by Dervla Nash, an experienced solicitor and member of the Society of Trust and Estate Practitioners (STEP). Whether you’re thinking about a lifetime trust, updating your will, planning around inheritance tax, or need advice on probate, we’re happy to talk it through.
You can get in touch with any of our offices in Castle Cary, Cheddar or Shepton Mallet, or arrange a virtual meeting if that’s easier.