How to include family trusts in divorce planning Divorce is a significant life event that involves the disentangling of emotional, personal, and financial relationships. Among the myriad of financial considerations, family trusts can present complex challenges. When a couple decides to separate, determining how assets held in trust factor into the division of property and financial settlements becomes a pivotal issue. This complexity is further magnified when trusts have been established to benefit children, to protect generational wealth, or to address specific financial planning goals. When it comes to marital breakdown, the presence of a family trust may have profound implications, regardless of whether the trust was created before or during the marriage. Proper handling of such structures in divorce proceedings requires a meticulous approach, involving legal, tax, and financial perspectives. This article provides a comprehensive overview of the key issues related to incorporating trusts into divorce planning, outlining best practices, legal considerations, and strategic steps for navigating this intricate area. The Role and Nature of Family Trusts Family trusts are legal arrangements wherein assets are transferred to a trustee, who holds and manages them on behalf of specified beneficiaries. These trusts can be discretionary, allowing the trustee wide-ranging powers in deciding how and when to distribute income or capital, or they can be fixed interest, where each beneficiary has a defined share of the trust. The primary appeal of family trusts lies in their ability to protect assets, provide for future generations, and manage wealth in a controlled manner. In a well-structured trust, neither the settlor nor the beneficiaries have full control over the trust assets. While this can provide protection against third-party claims—including those stemming from divorce—it does not make the trust automatically immune to scrutiny by the courts. Understanding the intention behind a trust, the degree of control the parties to the divorce hold over it, and how it has been used in the context of the family’s wealth are all crucial in determining how it should be treated in divorce proceedings. Legal Framework for Trusts in Divorce Cases In England and Wales, the Family Court has wide discretion under the Matrimonial Causes Act 1973 to redistribute financial assets upon divorce. The court’s primary concern is to ensure a fair outcome that meets the needs of both parties, especially when children are involved. A key issue is whether the trust in question is considered a financial resource available to either spouse. Courts may look beyond the formal legal structure of the trust to determine if one party has de facto control or if there has been a regular pattern of benefit that would suggest the trust constitutes a financial resource. This concept is known as the ‘nuptial settlement’ doctrine—if the court deems a trust to be a nuptial settlement, it can potentially vary it to transfer assets or income to the other spouse. Case law surrounding this area is complex. One benchmark decision is the case of Charman v Charman (2007), in which the Court of Appeal confirmed that a trust could be considered part of the matrimonial assets subject to distribution if the settlor or a party to the divorce has beneficial access or control. Similarly, in the case of Thomas v Thomas (1995), the court highlighted that assets held in trust do not automatically escape the court’s reach, especially if the lifestyle of the parties has consistently been supported by those assets. Identifying the Type of Trust and Its Features The specific structure and terms of a trust greatly influence how it will be treated in divorce proceedings. Critical aspects include: – The identity and roles of the settlor, trustees, and beneficiaries– The degree of discretion conferred upon trustees– The history of distributions made from the trust– The source of the trust assets– The purpose for which the trust was established Trusts erected purely for tax efficiency or asset protection reasons, especially when contributed to by one or both spouses during the course of the marriage, are more likely to be scrutinised. In contrast, trusts independently managed and established long before the marriage, typically by previous generations, may have a stronger claim to exclusion from the marital pot. However, even in those scenarios, if the trust has been a consistent source of income or capital to one of the spouses, such benefits may still be considered in any financial settlement. Protecting a Family Trust Before Divorce Arises Sound estate planning involves forethought not just about taxes and inheritance but also about potential future family conflicts, including divorce. Those establishing trusts should consider how a divorce might affect the trust’s assets and the interest of beneficiaries. Several strategies may help protect a trust from becoming entangled in divorce proceedings: – Drafting the trust deed with clear, non-nuptial intent, including explicit language that the trust is not designed to benefit any marriage or marriage-like relationship– Appointing independent trustees who act autonomously and not as agents of the settlor or beneficiaries– Minimising evidence of pattern-based distributions that might imply regular personal income– Avoiding naming spouses as direct beneficiaries, especially in discretionary trusts– Including robust powers to exclude or remove beneficiaries who become a financial risk to the trust’s purpose In some cases, prenuptial and postnuptial agreements can be employed to clarify that any interests in a particular family trust are separate property and should not be contested during divorce. While these agreements are not legally binding in the UK, recent jurisprudence has shown courts are increasingly willing to uphold them, assuming they are fair and entered into with full transparency and legal advice. Trust Assets as a Financial Resource Courts are guided by the notion of fairness, rather than rigid formulas, in determining the financial settlement of divorcing couples. One of the pivotal questions is whether a trust amounts to a financial resource—if one party has historically benefited from the trust, or if trustees have shown a pattern of distributions based upon requests or perceived need, the court may take these as indicators that trust assets can

How to use trusts to protect family members with addiction or financial issues Understanding how to provide for vulnerable or at-risk family members can be one of the most delicate and complex responsibilities facing a family. When those concerns involve addiction issues or financial instability, the desire to support a loved one must be weighed against the potential risk of enabling harmful behaviours or poor decision-making. One effective legal and financial instrument that can offer structured, protective, and long-term support is a trust. Trusts have long been a powerful estate planning tool, capable of safeguarding assets and directing financial assistance in a controlled and intentional manner. When used strategically, they can provide peace of mind to families by ensuring that loved ones in difficult circumstances receive adequate care and support without putting their inheritances—and consequently, their well-being—at unnecessary risk. This article explores the use of trusts in addressing complex family dynamics involving addiction or other financial mismanagement concerns, and how best to structure them to serve both the recipient and the family as a whole. The personal and emotional dimensions of these situations cannot be overstated. They often involve difficult decisions in emotionally-charged contexts. Carefully structured legal instruments, like discretionary or spendthrift trusts, offer a way to navigate these situations with compassion, foresight and stability. The rationale behind using trusts Providing for a family member living with addiction, whether it be substance abuse, gambling disorder, or compulsive spending, is fraught with complications. A direct, lump-sum inheritance can quickly be squandered, or worse, fuel dangerous behaviours. Similarly, those who have proven themselves financially irresponsible or burdened with debts are vulnerable to making poor choices with any sudden financial windfall. Unprotected, their inheritance may not last long enough to make a meaningful difference in their lives, and could even worsen the very problems it was meant to help alleviate. A trust offers a carefully calibrated solution. Rather than handing over a large sum outright, a trust allows the settlor—the person establishing the trust—to appoint a trustee to manage and distribute assets for the intended beneficiary according to set terms and conditions. This approach can ensure that the beneficiary receives long-term, needs-based support, while the original assets remain under professional oversight. Trusts also shield assets from creditors, potential legal claims, and the psychological pressure that can accompany financial self-management challenges. These protections do not come from a place of mistrust, but rather from a commitment to the long-term health, safety and stability of the person involved. Choosing the right kind of trust There are several types of trusts available under UK law, each suited to different circumstances. When the goal is to support someone with addiction or financial irresponsibility, some types of trusts are more effective than others. Some of the most relevant options include: Discretionary Trusts: This is perhaps the most flexible and protective form of trust for the scenarios being considered. In a discretionary trust, the trustees are given wide-ranging powers to decide how, when, and to whom to distribute income or capital. This means the beneficiary does not have a legal right to the trust’s income or capital, which protects the assets from being claimed by creditors or misused in a moment of crisis. The trustees can tailor the support to the beneficiary’s current needs, and even suspend payments if circumstances warrant caution. Spendthrift Trusts: Common in jurisdictions like the United States, this concept is not formally recognised under UK law as a distinct type of trust, but the same principles can be embedded within a discretionary or protective trust. In practice, a spendthrift-style trust limits the amount or frequency of disbursements and is overseen by trustees who are empowered to make judgement calls on financial distributions, thus protecting assets from being frittered away. Protective Trusts: This structure starts as a life interest trust—where the beneficiary is entitled to income—but becomes discretionary if the beneficiary attempts to assign their interests to a third party, or if they go bankrupt. This type of trust can be complicated and less flexible than a discretionary trust, but it offers automatic protections when certain conditions are triggered. Bare Trusts: Also known as simple or nominee trusts, these should generally be avoided in cases involving vulnerable beneficiaries. In a bare trust, the beneficiary is entitled to all of the income and capital at the age of majority (18 in the UK), which defeats the purpose of protection in situations involving addiction or financial irresponsibility. Selecting and empowering trustees The trustees of a trust play a critical role. This group or individual will be responsible for making distributions, assessing the beneficiary’s needs, and safeguarding assets. In especially sensitive cases, such as those involving addiction, selecting the right trustees is as important as structuring the trust itself. Many families mistakenly appoint siblings or close family friends out of convenience or familiarity, but in emotionally complex situations, that role can become fraught with conflict. It may strain personal relationships and create unmanageable emotional tensions. In many cases, appointing a professional trustee or a trust company with experience in administering vulnerable beneficiary trusts can mitigate these risks and promote better outcomes. It is also advisable to appoint more than one trustee or have a mechanism for checks and balances. This can include appointing a specialist and a family member to ensure that the spirit of the family’s intentions is maintained while still adhering to the legal contours of the trust structure. Defining the purpose with a letter of wishes While a trust deed establishes the legal framework of the trust, a non-binding document known as a letter of wishes accompanies most discretionary trusts. This is where the settlor can articulate their intentions in more nuanced and personal terms, offering guidance to the trustees without legally constraining their actions. For example, the settlor might write that they do not want funds released to the beneficiary when they are actively engaged in substance abuse or are in the midst of a financial crisis. They can recommend benchmarks or milestones for

How to structure charitable trusts for ongoing giving Establishing a charitable trust is a significant step for individuals and families who wish to make a lasting impact through philanthropy. It serves as a structured and enduring mechanism to support causes and communities that align with one’s values. With strategic planning and careful administration, charitable trusts can provide enduring benefits not only to the intended beneficiaries but also to the donors and their families. Structuring such a trust for ongoing giving requires an understanding of legal frameworks, financial instruments, governance, and philanthropic intent. What is a Charitable Trust? A charitable trust is a legal arrangement in which a donor (known as a settlor) transfers assets into a trust to be managed by trustees for specific charitable purposes. These trusts must comply with legal requirements set forth under the Charities Act 2011 in England and Wales, and similar legislation in Scotland and Northern Ireland. Unlike private trusts, which are intended to benefit specified individuals, charitable trusts must serve the public benefit and focus on charitable purposes such as relieving poverty, advancing education, or supporting the arts. One of the primary advantages of charitable trusts is their permanence. They offer a legal structure that can outlast the donor’s lifetime, ensuring a perpetuating stream of giving and a continuing legacy. However, realising the full potential of this arrangement requires careful structuring from the outset. Determining the Purpose and Scope Before creating a charitable trust, a donor must clearly articulate the charitable purposes it aims to serve. These purposes must fall within one or more of the recognised categories under charity law and demonstrate public benefit. Donors should consider both their philosophical motivations and practical outcomes. Would the trust support a broad category such as education, or be more specific, such as scholarships for women in engineering? Would it operate regionally or nationally? Narrow objectives can sometimes limit a trust’s ability to adapt to future needs, while broad mandates offer flexibility but may dilute impact. The best charitable trusts strike a thoughtful balance between directed purpose and adaptive capacity. Establishing a charitable trust also requires deciding whether the trust will make grants to existing charities, run its own charitable programmes, or adopt a hybrid model. Each approach comes with different administrative demands and cost implications. Clarity at this foundational stage ensures the trust will serve its mission effectively over time. Choosing the Right Legal Structure While charitable trusts are a specific type of legal vehicle, it is important to understand how they compare to alternative structures such as charitable companies or charitable incorporated organisations (CIOs). A charitable trust, governed by a trust deed and managed by trustees, has no separate legal personality. This means that trustees act in their own name and are collectively liable (although protected if they act prudently and within their remit). This structure may be preferable when the administrative load is light and operations are relatively straightforward. Alternatively, a CIO or charitable company limited by guarantee may be more suitable for trusts intending to engage in complex activities or employ staff. These structures provide limited liability and a separate legal identity, which can simplify contractual and regulatory matters. Selecting the appropriate legal form at the outset is critical because it can be cumbersome to restructure a charity later. Legal advice should be obtained to align the structure with the intended activities and risk profile. Funding the Trust Sustainably A central consideration in structuring a charitable trust for ongoing giving is how it will be funded, both initially and in perpetuity. Many donors choose to endow the trust with a capital sum, investing it to generate income that supports charitable activities long term. This endowment model offers predictability and sustainability, albeit with less flexibility in times of high demand. Alternatively, some donors opt for a spend-down approach, in which capital is distributed over a set period. This can maximise short-term impact but may curtail longevity. Others choose a hybrid pathway, blending capital investments with regular donations, bequests, or fundraising. If an endowed model is selected, attention must be paid to the investment strategy. Trustees are legally obligated to invest funds prudently, often guided by the Trustee Act 2000. An investment policy should be developed, defining acceptable asset classes, risk appetite, and considerations of ethical investing. Increasingly, philanthropic investors are aligning their portfolios with Environmental, Social and Governance (ESG) criteria, matching financial performance goals with social principles. Professional asset managers may be engaged to steward the fund, preferably those with experience in working with charities. It is also essential to review investment performance regularly and make adjustments as needed to preserve the real value of the endowment while providing sufficient income to meet the trust’s objectives. Establishing Effective Governance Governance lies at the heart of every successful charitable trust. Trustees have considerable responsibility in ensuring the trust fulfils its charitable purposes while complying with legal and regulatory obligations. Thus, donor-founders should devote careful thought to appointing their initial board of trustees. Trustees should be individuals of integrity with relevant expertise in areas such as law, finance, charitable operations, and the trust’s specific mission area. A diversity of perspectives and backgrounds can enrich strategic decision-making and ensure responsiveness to future challenges. The trust deed should clearly outline governance processes, including criteria for trustee appointments, terms of service, conflict of interest policies, and procedures for meetings. Regular trustee meetings should be minuted and involve review of financials, programme performance, and strategic priorities. Succession planning is also crucial to ensure continuity. Some founders include provisions allowing family members to serve as future trustees, preserving the original philanthropic vision across generations. Others establish independent boards to maintain impartial oversight. Either approach can work effectively if roles and responsibilities are well-defined from the outset. Furthermore, trustees should establish appropriate internal controls, financial policies, and mechanisms for risk assessment. This not only fosters transparency and accountability but also protects the trust’s assets and reputation. Regulatory Compliance and Reporting Charitable trusts in the UK must be registered with the

Using family trusts to protect generational wealth Understanding the importance of preserving wealth across generations is an increasingly salient topic for families seeking financial security and long-term prosperity. Whether a family operates a business, owns property, or invests across multiple asset classes, safeguarding these resources for future generations involves more than prudent spending and investment strategies. One of the most effective tools in estate and succession planning is the family trust—a flexible legal structure that allows for strategic management, distribution, and protection of assets over time. Family trusts are increasingly common in the UK and abroad, where high-net-worth individuals and families are considering not only how they accumulate wealth but also how they transfer it responsibly. In this article, we shall explore the various facets of this financial instrument, including its mechanics, benefits, limitations, and practical considerations for families looking to retain and grow their wealth in a sustainable, legally compliant, and tax-efficient manner. A strategic approach to intergenerational planning not only ensures that assets are enduringly protected, but also that they are distributed according to tailored wishes while navigating the complex landscape of taxes and family dynamics. What is a family trust? A family trust is a specific type of trust arrangement designed to hold and manage assets on behalf of a family and its future generations. In legal terms, a trust is an agreement wherein the owner of assets (the settlor) transfers those assets into the control of another party (the trustee), to be managed for the benefit of a third party (the beneficiaries). The trust itself becomes the legal owner of the assets, while the beneficiaries are entitled to benefit from them in accordance with the conditions set out in the trust deed. Unlike a company or a will, a family trust is not a legal entity per se, but rather an arrangement recognised and enforced by law. Trust law in the United Kingdom has evolved over centuries, enjoying a solid legal foundation in both statute and common law. A trust can include a wide array of assets, including real estate, company shares, investment portfolios, cash, intellectual property, and even insurance policies. Key roles in a family trust The structure and success of a family trust depend on several important stakeholders, each with defined responsibilities. Understanding these roles is central to appreciating how the trust functions. The settlor is the individual or individuals who establish the trust and transfer assets into it. They define the intentions and provisions through the trust deed. In some cases, the settlor may also be a trustee or a beneficiary, although this can lead to legal and tax complexities and should be carefully navigated. The trustees are appointed to act as the legal owners of the trust’s assets. They are mandated to manage the trust in accordance with the legal requirements and the provisions within the trust deed. Trustees must act in the best interests of the beneficiaries and are held to high fiduciary standards. The beneficiaries are the individuals or class of individuals for whom the trust is intended to benefit. They do not possess legal ownership of the assets but have either fixed or discretionary rights to them, depending on the structure of the trust. Beneficiaries are usually family members, and can include blood relatives, adopted children, or even unborn descendants. The protector is an optional role, often used in more complex trusts. This individual may hold the power to approve trustee decisions, appoint or remove trustees, or provide oversight to ensure the trust is operated in accordance with the settlor’s wishes. Types of family trusts There are several kinds of trusts that can serve family protection and wealth-preservation purposes. Each has its own level of flexibility, tax treatment, and administrative implications. A discretionary trust is one of the most popular models for family trusts. It provides the trustees with significant flexibility in deciding how, when, and to whom benefits should be distributed within the pool of eligible beneficiaries. This flexibility allows trustees to adapt distributions based on changing circumstances and individual needs, which is particularly valuable in families where member needs vary over time. An interest-in-possession trust, on the other hand, provides a specified beneficiary with a right to the income generated by the trust’s assets, while the capital may be preserved for future beneficiaries. Often used to support a surviving spouse with income while preserving the capital for children or grandchildren. A bare trust is the simplest form, where the beneficiary has an immediate and absolute right to the assets held in the trust. It is often used for holding assets on behalf of minors until they reach legal adulthood. However, this trust provides little control once the beneficiary becomes entitled to the assets. How family trusts protect wealth The need for asset protection becomes clear when considering the myriad threats to individual and family wealth. These can include business bankruptcies, divorce settlements, litigation, excessive taxation, and even the financial imprudence of heirs. A well-structured family trust shields assets from many of these vulnerabilities while offering layers of control and guidance over how and when wealth is transferred. Creditor protection is among the most appealing aspects of family trusts. When assets are held in trust, they are no longer legally owned by the settlor or any individual family member. As such, they are usually beyond the reach of personal creditors, assuming the trust was not established to deliberately defraud. For business owners or professionals in high-risk roles, this provides a valuable buffer against financial volatility. Family trusts also play a crucial role in navigating and mitigating family breakdowns. By ring-fencing assets within the trust, families can prevent wealth from being divided as part of divorce settlements or being mismanaged by beneficiaries who may have poor financial habits, dependencies, or vulnerabilities. Furthermore, they serve as a hedge against eroded wealth due to inheritance disputes. With a clearly articulated trust deed, trustees can dispense with confusion and potential liabilities by adhering to the rules, thus helping avoid costly legal

Setting up life interest trusts for surviving spouses Understanding how to protect loved ones both during and after your lifetime is a key component of thorough estate planning. For many individuals, particularly those in long-term relationships or marriages, there is a desire to provide adequately for a spouse after death while also ensuring that the estate is eventually passed on to children or other beneficiaries as intended. Life interest trusts offer a strategic way to fulfil both these objectives. This article provides a comprehensive explanation of this estate planning tool, its benefits, potential drawbacks, and factors to consider before including one in your will. What is a life interest trust? At its core, a life interest trust, sometimes known as an ‘immediate post-death interest’ trust, is designed to provide income or the right to occupy a property for a beneficiary (typically a surviving spouse or civil partner) for the duration of their life. After their death, the asset passes to another predetermined beneficiary or beneficiaries — usually children from the relationship or, in the case of blended families, children from a previous relationship. This structure separates legal ownership and beneficial enjoyment. The trustees own the asset and manage it on behalf of the ‘life tenant’ (the person with the life interest) and the ‘remainder beneficiaries’ (those who inherit the trust capital after the life tenant’s death). The life tenant does not own the underlying asset but has the legal right to use it or receive the income it generates. The asset placed in a life interest trust is commonly a residential property. However, it can also include investments or other income-generating assets, depending on the testator’s overall strategy and the beneficiaries’ needs. Who can benefit from such a trust? The primary motivation behind creating a life interest trust is to balance the need to provide for a surviving partner while securing assets for future generations. These trusts are particularly suitable for: Married couples and civil partners who want to ensure the surviving partner can continue to live in the shared home or receive an income for life. Individuals in second marriages who wish to support their current spouse but preserve family wealth for their own children from a previous relationship. Testators concerned about the surviving partner remarrying or changing their will after their death, potentially disinheriting children from the original relationship. Those fearing that, should the surviving spouse require residential care in later life, the entirety of the estate may be consumed by care fees. How does a life interest trust work? When creating a will, the testator specifies which assets should pass into the trust and names the trustees (often family members, professionals, or a blend of both). Upon death, the estate is administered, and once debts and taxes are settled, the trust is formalised. The life tenant then receives the agreed benefit, typically either the right to live in a property or income from invested capital. The trustees are responsible for ensuring the trust terms are adhered to. Their duties include maintaining the trust property, making investment decisions, paying any income to the life tenant, and eventually distributing the trust property to the remaindermen once the life tenant’s interest ends. A standard structure might look like this: A husband passes away, leaving his share of the marital home in a life interest trust for his wife. She continues living in the home for the rest of her life. Upon her death, his share is passed to their children, as outlined in the will. Advantages of using this type of trust These trusts offer a high degree of control and protection over the future use and disposal of assets. For many families, this structure strikes a careful balance between protecting surviving spouses and providing long-term benefits for children or loved ones. The key advantages include: Security for the surviving spouse: They can remain in the family home and maintain a standard of living, free from the worry of being displaced or left with insufficient income. Asset protection: By placing assets into a trust, they are no longer owned outright by the surviving spouse. This limits the risk of the assets being diverted, for instance through remarriage, financial mismanagement, or influences from third parties. Control over ultimate beneficiaries: The testator determines who will benefit from the trust after the life tenant’s death, allowing them to ensure the next generation is not unintentionally disinherited. Potential protection from care home fees: Assets within a trust may not be included in the financial assessment for residential care needs, although care must be taken not to fall foul of deliberate deprivation rules. Mitigating inheritance tax (IHT): Life interest trusts within wills of married couples or civil partners can qualify for a spouse exemption, deferring inheritance tax until the death of the second spouse. Future planning, such as nil-rate band or residence nil-rate band optimisation, can also be incorporated. Concerns and limitations to consider As with any estate planning vehicle, life interest trusts are not without potential drawbacks. Understanding these limitations can help you determine whether the structure aligns with your personal and family circumstances. Complexity of administration: Trustees have ongoing fiduciary responsibilities, including record-keeping, investment management, tax reporting, and potentially interaction with the courts. Professional advice and support may be required, particularly for larger or more complex estates. Limited flexibility for life tenant: While the life tenant may benefit from the property or income, they do not control the assets. This can lead to frustration—for example, if the trustees refuse to make discretionary capital distributions or sell an asset. Restrictions on downsizing or moving house: If the life tenant wishes to move, they can do so with the trustees’ agreement and under the trust provisions. However, conflicts can arise between wanting freedom of movement and preserving asset value for the ultimate beneficiaries. Potential tension among beneficiaries: Balancing the needs of the life tenant with the interests of remaindermen can cause tension or disputes, especially in blended families. Clear communication, good trustee choices, and

Planning for care home fee protection with trusts Understanding how to safeguard one’s assets from care home fees is a concern for many individuals, especially those approaching retirement or those with elderly family members. The increasing cost of residential care has made it critical for families to explore viable strategies that can help preserve wealth for future generations. Among these strategies, the use of trusts has emerged as a prominent solution. However, this area involves complex legal and financial considerations. In this article, we examine how trusts operate as a mechanism for planning against care home fees, the implications of such planning, and the steps individuals should take to ensure decisions are informed and compliant with current legislation. Why planning for future care costs is essential The financial burden of long-term residential care is a growing challenge in the United Kingdom. With an increasing ageing population and a care system under pressure, individuals now must give careful thought to how care arrangements will be funded if needed. The cost of staying in a care home can range from £30,000 to over £50,000 annually, depending on the location and level of care required. For many, these fees can quickly erode savings, including the value of the family home, potentially reducing the inheritance passed on to loved ones. The government calculates how much an individual should contribute to their care costs based on a means test, which includes both income and capital. If your capital exceeds a certain threshold (currently £23,250 in England), you are expected to self-fund your care. Those with capital below this threshold may receive partial or full support, but options for care could be more limited. Many families are alarmed to learn that the main residence can be counted as part of their capital once a person enters permanent care, particular if no qualifying dependant remains in the property. As such, careful planning is not only prudent but vital for those seeking to protect their assets and maintain some level of financial autonomy and dignity in older age. The role of trusts in asset protection Trusts are legal arrangements where one party (the settlor) transfers ownership of assets to another party (the trustee) to be held for the benefit of a third party (the beneficiary). In the context of estate and care fee planning, trusts can be a powerful tool. They enable individuals to ring-fence assets and remove them from the scope of future means testing—under certain conditions. There are various types of trusts, each with different structures, benefits, and implications. When it comes to care fee planning, the most commonly used include life interest trusts, discretionary trusts, and property protection trusts. These structures can help ensure that capital—especially the main residence or significant sums of money—is preserved and managed in accordance with the individual’s wishes. However, it is crucial to note that any attempt to divest oneself of assets with the sole intention of avoiding care fees may be considered deprivation of assets by local authorities. This can lead to the trust assets still being included in the financial assessment, negating the protective effect. Understanding local authority means testing Under current legislation, local authorities are required to carry out a financial assessment to determine a person’s ability to contribute to their care costs. This means test evaluates income and capital, with key considerations including state benefits, pensions, savings, and the value of property. If the total capital exceeds the upper threshold, self-funding applies until the person’s assets fall below the lower threshold. A property might not immediately be counted if certain dependants live there, including a spouse, civil partner, or a relative over the age of 60. Once these circumstances no longer apply, however, the property can be included in the person’s capital. This is where trusts may play a role. If assets have been placed in a trust long before the need for care arises, and without the deliberate intention to avoid fees, they may not be considered part of the means-tested estate. However, the local authority has the right to assess each case individually and can still treat the assets as notional capital if it deems that deprivation has occurred. The deprivation of assets rule The deprivation of assets rule allows local authorities to investigate whether an individual has intentionally reduced their assets to avoid paying care fees. This rule applies under the Care Act 2014, which gives councils the discretion to include transferred or gifted assets in financial assessments if they believe the action was taken deliberately to reduce potential care costs. Timing and intention are critical. If a person places assets into a trust shortly before needing care, or at a point where it is reasonably foreseeable that they may need care, the local authority can argue that the act was deliberate deprivation. Vague or insufficient evidence of alternate motivations, such as tax planning or future inheritance management, may not suffice. To avoid falling foul of deprivation rules, assets should be settled into trusts at a time when there is no foreseeable need for residential care. This can be many years in advance and should be part of longer-term estate and financial planning rather than a reactive measure. Exploring different trust structures Setting up a trust is not a one-size-fits-all process. Various trusts offer distinct mechanisms and levels of protection. Understanding these options, along with their respective pros and cons, can help individuals and families make the right choice. A life interest trust (also known as an interest in possession trust) grants a person the right to receive income or benefit from an asset during their lifetime, but without owning it outright. Most notably used within wills to protect a surviving spouse while safeguarding capital for children, this trust can also play a role in care fee planning when assets are placed into the trust on death. Property protection trusts are frequently used in conjunction with will planning. They allow one spouse, upon death, to place their share of the family home

The Benefits of Setting Up a Discretionary Trust in Your Will When drafting a will, individuals are often faced with a variety of options regarding how their assets should be distributed upon their death. Among these options, the use of trusts stands out for its versatility and potential to serve a wide array of family circumstances. One such structure is the discretionary trust. This instrument offers a highly flexible means of controlling how and when assets are distributed to beneficiaries, while also providing safeguards against a range of potential future uncertainties. A discretionary trust can be an effective estate planning tool for protecting beneficiaries, managing complex family dynamics, and providing financial security across generations. In an ever-changing world, where family structures are increasingly diverse and economic conditions fluctuate, building flexibility into your estate planning is more important than ever. Understanding the benefits of including such a trust in your testamentary arrangements is key to making informed decisions that align with your objectives and those of your loved ones. Flexibility in Asset Distribution A primary advantage of this type of trust lies in the level of discretion granted to the trustees. Rather than having fixed entitlements to the estate or predetermined shares, beneficiaries named in the trust are considered potential recipients. The trustees have the authority to decide which beneficiaries should receive what portion of the assets, when, and under what circumstances. This is particularly beneficial when dealing with young beneficiaries who may not yet be financially mature enough to handle a large inheritance. The trustees can choose to delay distributions until the beneficiary reaches a certain age, has achieved specified life milestones, or demonstrates the financial acumen required to manage significant assets. This flexibility means that distributions are not solely dictated by an arbitrary schedule but are instead tailored to the beneficiaries’ evolving life circumstances. Additionally, this discretionary mechanism is valuable when considering beneficiaries who face personal issues, such as addiction, gambling problems, or unstable financial habits. By allowing trustees to manage distributions carefully, a discretionary trust helps to support these individuals in a measured, protective way without compromising the integrity of the estate. Protection Against External Threats Another compelling benefit is the layer of protection that a discretionary trust creates against external threats. When assets are distributed outright under a will, they typically become part of the beneficiary’s personal estate. This exposes them to risks such as divorce settlements, creditor claims, or bankruptcy proceedings. In contrast, assets held within a discretionary trust remain under the control of the trustees and do not form part of a potential beneficiary’s personal assets until they are distributed. This structure significantly reduces the risk of third parties accessing the trust assets through legal or financial claims. It can therefore be particularly useful for beneficiaries who run their own business, are in high-liability professions, or otherwise face financial uncertainty. The trust also offers an element of protection in the event of a beneficiary experiencing marital difficulties. As the assets remain separate from their personal finances, it is more difficult for ex-spouses to make claims against trust funds during divorce proceedings. This ensures the testator’s wishes for the future of their estate are less likely to be disrupted by such external influences. Support for Vulnerable and Disabled Beneficiaries Providing for family members with special needs is another area where discretionary trusts prove particularly effective. In the UK, individuals with disabilities may be receiving means-tested state benefits or services. If these individuals receive an inheritance outright, it can jeopardise their entitlement, as they may exceed the qualifying income or capital thresholds. A discretionary trust allows parents and carers to leave money for a vulnerable dependent without compromising their state support. Since the beneficiary does not have a fixed entitlement, and the trust is managed by independent trustees, the funds are not treated as part of the beneficiary’s estate for the purpose of means-testing. The trustees can use their discretion to release funds in a controlled way to enhance the beneficiary’s quality of life—paying for additional care, equipment, travel, or housing—without affecting core government support. By offering both ongoing financial provision and protection against this risk, setting up such a trust through a will ensures peace of mind for families with vulnerable members. Succession Planning Across Generations Modern families often include multiple generations with differing financial needs and varying degrees of financial independence. Estate planning is no longer just about passing on wealth to the immediate next of kin. Increasingly, individuals wish to structure their wealth in a way that supports children, grandchildren, and even great-grandchildren over time. A discretionary trust allows for assets to be managed long-term and distributed incrementally. This ensures not only that younger generations benefit as needed but also that wealth is preserved and grown under competent stewardship. By granting the trustees investment powers, the assets can continue to generate income, pay costs and taxes, and increase in value over time. This longer-term strategy contrasts with the more fixed approach of simply dividing assets at death and thereby spending down an estate rapidly. Furthermore, inheritance tax (IHT) considerations often play a role in succession planning. Properly structured, a discretionary trust can help to mitigate IHT liabilities. While the trust itself may be subject to periodic and exit charges, careful planning and execution with the help of a financial adviser and solicitor can help manage these implications within acceptable bounds. Managing Changing Family Dynamics Family structures are no longer as straightforward as they might have been in the past. Blended families, second marriages, stepchildren, and estranged relatives can complicate inheritance decisions. A rigid distribution of assets via a standard will may not reflect an individual’s nuanced wishes or adapt to future family conflicts and changes. Using a discretionary trust provides an adaptable framework. For example, an individual may want to provide for a current spouse during their lifetime but ultimately wish for the estate to pass to children from an earlier marriage. A trust can accommodate such a layered arrangement by allowing trustees

What Are Lifetime Trusts and How Do They Work? In the realm of estate planning, individuals and families often look for ways to protect wealth, reduce tax liabilities, and provide for loved ones with minimal disruption. One of the most versatile and effective tools employed in this context is the lifetime trust. These legal and financial instruments offer a flexible framework for managing and distributing assets during one’s life and after death, while also addressing concerns such as care costs, inheritance tax, and continuity of financial planning. Grasping the function and intricacies of these trusts is essential for anyone considering comprehensive estate management. Defining the Legal Framework A lifetime trust is a legal arrangement established during the settlor’s lifetime – the settlor being the individual who creates the trust. This sets it apart from a will trust, which only takes effect upon the death of the testator. In basic terms, the settlor transfers assets – which can include property, cash, shares, or other investments – into a trust, and appoints trustees to manage those assets in accordance with the terms outlined in the trust deed. The beneficiaries are the individuals or organisations who will benefit from the trust, either through income, capital, or both. By transferring assets into a trust, the settlor removes legal ownership from themselves, which can have significant implications for taxation, asset protection, and state benefit assessments. However, the settlor can still retain a degree of control, especially if they also act as trustee or include specific conditions within the deed. Types of Lifetime Trusts Explained There are several types of lifetime trusts available, each serving a different purpose and offering different advantages. The most common include discretionary trusts, interest in possession trusts, and bare trusts. Discretionary trusts give trustees the power to decide how income and capital are distributed among the beneficiaries. This format is often used when flexibility is desired – for instance, if the beneficiaries are minors, have special needs, or may experience fluctuating financial circumstances. Interest in possession trusts grant one or more beneficiaries a right to the income generated by the trust assets, either for life or a defined period, while the capital eventually passes to another beneficiary. This structure is often used to provide for a spouse while preserving capital for children from a previous relationship. Bare trusts, on the other hand, give beneficiaries an absolute right to both the income and capital of the trust. They are often used in simpler arrangements, such as for minor children, where assets can be held until the beneficiary attains a certain age. Each type of trust serves a specific role in estate or financial planning, and the choice between them will depend on the settlor’s objectives, family circumstances, and tax considerations. Asset Protection and Control Benefits One of the primary motivations for creating a trust during one’s lifetime is asset protection. By moving assets out of personal ownership and into a trust, they are shielded from certain external threats. This can include protection from creditors, divorce settlements, or the financial mismanagement of potential beneficiaries. In professions with higher exposure to litigation or claims – such as medicine, law, or business – a trust can offer a degree of insulation from personal liability. Furthermore, the structure allows a settlor to dictate how assets are used. For example, a trust can specify that beneficiaries receive income only upon reaching a certain age or upon fulfilling specific criteria, such as completing education. This provides an enhanced level of control compared to a simple lifetime gift or bequest in a will. This managed control is particularly useful when considering second marriages, blended families, or a desire to ensure intergenerational wealth transfer with minimal conflict and maximum tax efficiency. Tax Implications and Planning Trusts can have complex tax ramifications in the UK, and understanding these is crucial for anyone considering setting one up. Despite their many benefits, lifetime trusts are not mechanisms for avoiding tax outright, but rather for structuring affairs efficiently and lawfully. When an individual transfers assets into a trust, this is generally considered a chargeable lifetime transfer for inheritance tax (IHT) purposes, unless it qualifies for specific exemptions or reliefs. For most trusts, particularly discretionary ones, amounts above the nil-rate band – currently £325,000 per individual – attract an immediate IHT charge of 20%, payable within six months of the transfer. Furthermore, certain trusts are within the “relevant property regime”, meaning they are subject to periodic charges – every ten years – of up to 6% on the value of the trust over the IHT threshold, as well as exit charges when distributions are made. These charges are designed to ensure that wealth transferred into trusts does not entirely avoid IHT over the long term. However, careful planning can mitigate some of these tax burdens. Assets that qualify for business property relief or agricultural relief can potentially be transferred into trust without immediate IHT liability. In addition, using a series of gifts over multiple years or spreading assets between different types of trusts can enable more favourable treatment. Notably, income generated by trust assets is subject to income tax, with the trustee usually responsible for payment. Higher rates apply to discretionary trusts, currently up to 45%, depending on the nature of the income. Capital gains within trusts are also liable to capital gains tax (CGT), but annual exemptions and holdover relief may apply depending on the circumstances. Ultimately, working with a qualified financial adviser or solicitor is essential to navigating the tax landscape associated with trusts. Planning for Long-Term Care Costs With life expectancy on the rise and healthcare becoming increasingly expensive, many individuals worry about the potential erosion of their estate due to care fees. A lifetime trust can help manage this risk, though recent changes and tighter regulations have narrowed the scope for avoiding care costs through such mechanisms. Local authorities have the power to assess whether a transfer of assets into a trust was done with the deliberate intention of depriving

Dealing with Unclaimed Estates in the UK When an individual passes away without a will and without close family or friends to claim their estate, their property and assets can become what is known as an “unclaimed estate.” Rather than immediately disappearing or being absorbed into government accounts, these estates follow a clearly regulated legal path under UK inheritance law. The process is overseen by the Bona Vacantia Division of the Government Legal Department, and while it may initially seem obscure, unclaimed estates have deep implications—both for individuals who may be unknowingly entitled to an inheritance and for the broader legal and economic frameworks in place. In the UK, intestacy rules come into effect when someone dies without a valid will. Without explicit instructions on how the estate should be distributed, legal frameworks must determine who, if anyone, is entitled to receive the deceased person’s assets. This process often illuminates long-forgotten family ties, sparks interest from professional heir hunters, and occasionally results in assets reverting to the Crown. This article explores the mechanism, consequences, and practical considerations of dealing with these estates. The Legal Definition and Framework The underpinning legal concept in cases such as these is called bona vacantia—a Latin term meaning “ownerless goods.” In England and Wales, when a person dies intestate and with no apparent next of kin, their estate is declared bona vacantia and claimed by the Crown. The Bona Vacantia Division is responsible for handling such situations. Scotland and Northern Ireland follow separate but similar procedures. When probate is not granted because no eligible family member steps forward, the property falls essentially into a legal limbo. This is not to say the assets vanish; on the contrary, they remain accounted for, documented thoroughly, and are available for claim—often for decades—provided a rightful heir emerges with sufficient legal evidence. Identifying Next of Kin According to intestacy law in the UK, next of kin are identified in a strict order of priority. This begins with direct descendants and ascendants: children, grandchildren, parents, and grandparents. Where no direct descendants exist, the search broadens to include siblings, aunts, uncles, and even more distant cousins. The law does not necessarily consider the emotional or relational closeness of individuals to the deceased. So, while a lifelong friend or domestic partner might feel logically and morally entitled to inherit, the absence of legal recognition in the form of marriage or civil partnership can completely exclude them from entitlement. This discrepancy highlights the importance of clear will-making, but it also brings attention to what happens when no such document exists. In some cases, the search for heirs becomes complex. The government will not expend unlimited resources to find potential heirs. If no qualifying relatives are identified relatively quickly, the estate remains unclaimed until a claim is lodged and validated. The Role of the Bona Vacantia Division When a deceased person’s estate is believed to be ownerless, the Bona Vacantia Division is notified. The division maintains a public record—often referred to as the unclaimed estates list—which lists anonymous details such as the name, place of death, and date of death. This list is freely and publicly available and is updated regularly. It provides a portal of opportunity for genealogists, professional heir hunters, and ordinary individuals who believe they may be related to someone who has died. Legally, individuals or firms have 30 years from the date of death to make a claim on a bona vacantia estate. After this period, the estates are absorbed by the Crown permanently and cannot be reclaimed. The assets usually go into the Consolidated Fund, essentially a UK governmental bank account used for public projects and services. Claims and the Heir Hunting Industry The business of heir hunting—romanticised and dramatised by television shows—has become a legitimate and sometimes controversial field. These professionals track family lineages backward, establish relationships using public records, and approach potential heirs with offers to act on their behalf in claiming an estate. In exchange, they typically charge a percentage of the inheritance—often between 10% to 40%—depending on the nature, difficulty, and value of the claim. While this service can be invaluable to individuals who may never have known about distant relationships or potential entitlements, it also opens the door to less reputable practices. Because of this, it is advised that would-be heirs perform their due diligence, request registration and identification information from heir hunters, and seek independent legal advice before signing up for services or agreements. How to Make a Claim If an individual believes they are entitled to a share of an unclaimed estate, there is a formal process managed through the Bona Vacantia Division. The claimant must present comprehensive genealogical evidence establishing themselves as kin. This typically includes birth and marriage certificates, often for several generations, to definitively link themselves to the deceased. Once the claim is validated, probate proceedings commence. The rightful heirs, or their authorised representatives, will be issued a Grant of Letters of Administration, allowing them to manage the estate just as an executor would in a typical probate scenario. From this point, assets can be sold, debts settled, and proceeds distributed. However, it is important to note that the government will not pay out on partially supported claims. Inheritance must be proven beyond doubt through official documentation. This requirement ensures that fraudulent claims are avoided and that assets are allocated justly but can also be a significant barrier for people from countries or communities where historical record-keeping was poor or lost during conflicts and migrations. Unclaimed Estates and Real Property Properties left behind can be a complex part of unclaimed estates. Real estate found in the estate will be managed under Treasury Solicitor guidelines and may be sold if there is no indication of claim or pending interest within a practical timeframe. Due to increasing urbanisation and appreciation in property value, real estate is often the most valuable component of unclaimed estates. Local councils or housing associations sometimes become temporary stewards of these properties if the deceased was