You may have seen headlines like “Putting our home in a trust was a legal nightmare” and wondered, are trusts more hassle than they’re worth? The truth is, when set up and managed correctly, trusts remain one of the most powerful tools for estate planning. They can help reduce Inheritance Tax, protect assets, and give you flexibility and control. The real problem isn’t trusts, it’s poor advice. So, in this blog I’m going to break down why trusts are still a smart choice and how they can work for you.
How Trusts help you reduce Inheritance Tax
Inheritance Tax (IHT) planning is a major concern, especially for farmers and business owners after recent legislative changes.
Trusts have their own IHT regime, which means:
- You can move assets into a trust up to your available Nil Rate Band (£325,000) and remove them from your estate for IHT purposes. If certain reliefs apply, you may be able to gift more into trust.
- From April 2026 there is a £2.5m allowance for qualifying agricultural and business assets across lifetime trusts created by the same person. This is a huge advantage for families looking to protect their farm or business.
How Trusts protect your assets from care home fees
Many people assume putting their home into a trust will automatically shield it from care fees. Unfortunately, it’s not that simple with strict rules that exist to prevent deliberate avoidance.
Putting your home into a trust during your lifetime is complex and often misunderstood. If you continue to benefit from the property (for example, by living there without paying full market rent), the arrangement will not achieve Inheritance Tax advantages because HMRC treats this as a gift with reservation of benefit. In most cases, such planning is done for other reasons, such as care fee considerations, but beware: if the local authority can link the transfer to your later need for care, they may view it as deprivation of assets and disregard the trust. Additionally, holding a property in trust brings practical challenges, including selling, mortgaging, or winding up the trust. This type of planning has a time and place, but it requires careful advice.
A better option would be to include a trust in your Will. For example: A Right of Occupation or Life Interest Trust lets your spouse stay in the home while protecting the capital for children or other beneficiaries. If the local authority carries out a means test, only the survivor’s share should count.
How Trusts give you flexibility and control over your estate
Even though you generally shouldn’t personally benefit from assets in a trust if the goal is Inheritance Tax planning, you can still act as a trustee. This means you help manage the trust, decide when assets are distributed, and make adjustments if circumstances change. Acting as a trustee can be a good middle ground between giving assets away completely and keeping them in your own name.
Trusts are excellent for:
- Business succession
They provide continuity, control, and tax efficiency. - Preventing dilution of control
Protect against premature decisions while ensuring a smooth transition to the next generation. - Tax-efficient gifts
For example, grandparents can create trusts to provide income for grandchildren, e.g., settling shares in a family business to fund education costs. - Asset protection
Safeguarding family wealth from creditors, reduce exposure to divorce settlements and ensure that assets are preserved for future generations (even if circumstances change)
If you’d like to understand how trusts could work for you and your family, please don't hesitate to get in touch.