05/02/2025

Trusts are increasingly popular financial tools used by both business owners and families to protect and manage wealth.

A trust is a legal arrangement where assets such as money, property, or investments are held by a trustee for the benefit of one or more beneficiaries.

While often associated with inheritance planning, trusts offer much broader applications, providing both immediate and long-term financial solutions for businesses and families. Using a trust can protect against various types of risk, including financial difficulties of beneficiaries and divorce, so provide more control than gifting shares outright.

What is a Trust?

A trust is a legal structure designed to hold and manage assets for the benefit of certain individuals or entities, known as beneficiaries. The person who creates the trust is referred to as the settlor, while the trustee is the person or institution responsible for managing the trust and ensuring that its terms are followed.

Trusts can be used for various purposes, ranging from estate planning to providing financial security for dependents. In the UK, trust law is governed by a combination of common law and specific statutes, such as the Trustee Act 2000 and the Inheritance Tax Act 1984. There are several types of trusts available, each with specific benefits depending on individual or corporate needs.

Uses of trusts for business owners

Succession planning

One of the most significant benefits of trusts for business owners is their use in succession planning. Business owners often wish to ensure that their company remains in the family or is passed to a trusted successor upon retirement or death. A family business trust can be set up to hold shares in the business, allowing the business owner to transfer ownership without losing control during their lifetime. This approach can reduce potential disputes among family members and provide a seamless transition of ownership, ensuring business continuity.

Tax efficiency

Trusts can also be structured to minimise tax liabilities. For example, discretionary trusts can allow trustees to manage the distribution of income and capital to beneficiaries, helping to reduce tax exposure. If shares qualify for business relief, they can be passed into trust attracting no inheritance tax (IHT), although this is due to change following the October 2024 budget announcement. There might still be capital gains tax but this can be held over, which means there would be no immediate charge. If assets don’t qualify for business relief and the person making the gift survives seven years, the value of the assets gifted will no longer be part of their estate for IHT purposes.

At Beswicks, our corporate and private wealth solicitors work in conjunction with tax advisers to ensure things are structured in the most efficient way.

Asset protection

Trusts offer a level of asset protection that is particularly beneficial for business owners concerned about personal liabilities. For instance, assets such as company shares that are placed into a trust can benefit from protection from legal disputes or bankruptcy. This protection is especially relevant for owners of small and medium-sized enterprises where personal and business finances are often closely intertwined.

Employee benefit schemes

Some business owners use trusts to create employee benefit schemes, such as share incentive plans or pension funds. These trusts can enhance employee engagement and loyalty by providing a structured and tax-efficient way for employees to gain a stake in the business. Trusts of this nature can be set up to ensure long-term sustainability of employee benefits, even if the company undergoes changes in ownership.

Uses of trust for families

Inheritance planning

For families, trusts are often used as part of inheritance planning. for example a trust can ensure that assets are passed down to future generations in a tax-efficient manner. This can be especially important for families with significant assets, such as property or investments, as trusts can help reduce the inheritance tax burden. You can also leave your estate to a trust on your death.

Providing for vulnerable dependents

Trusts are commonly used to provide for vulnerable or minor dependents who may not have the capacity to manage finances. A vulnerable beneficiary trust can be established to ensure that a family member with disabilities is financially secure without jeopardising their eligibility for state benefits. Similarly, trusts can be set up to provide for children or grandchildren, allowing the settlor to dictate how and when the funds should be accessed.

Divorce and family protection

Family trusts can also be used to help to protect assets in the event of a divorce. In the UK, assets placed into a trust before marriage are generally not considered part of the matrimonial estate and can be better protected in divorce settlements. This can provide peace of mind for parents who want to safeguard their children’s inheritance from the risk of future relationship breakdowns.

Education and lifestyle support

Parents or grandparents may set up trusts to provide for a child’s education or future lifestyle needs. By placing assets into a trust, the settlor can ensure that funds are available for specific purposes, such as university fees, buying a home, or starting a business. Trusts can help grandparents pay for their grandchildren’s school fees in a tax efficient way.

Using trusts for these purposes not only provides financial security but also allows the settlor to have some control over how the money is used, even after they are no longer around.

Benefits of trusts

To summarise, trusts are versatile tools that offer numerous benefits to both business owners and families. From providing tax advantages and asset protection to ensuring the smooth transition of wealth and business ownership, trusts are an important consideration for anyone looking to safeguard their financial future. Properly managed, they offer a flexible and efficient way to pass on wealth, protect assets, and plan for the future with confidence.

Need more advice on trusts?

If you’ve got questions about how to structure your business or assets whether via trust or other estate planning tools, contact our experienced private wealth team by emailing enquiry@beswicks.com or phoning our Stoke-on-Trent solicitors on 01782 205000 or our Altrincham solicitors on 0161 929 8494.