Trusts can be powerful tools for estate planning, but they’re not a magic bullet. Many families set them up expecting big tax savings or simple solutions, only to discover costs, complexity, and in some cases, no real benefit at all.
For centuries, trusts have been used to protect family wealth, provide for children, and manage succession. Done well, they can still achieve those aims. But in the UK today, trusts are often oversold, and under-reviewed.
1. The promise vs the reality
Advisers or lawyers may promote trusts as a way to:
~Reduce inheritance tax (IHT)
~Protect assets from care fees
~Control how and when wealth is distributed
In practice, the benefits are far narrower. For example, “gifts with reservation” rules and 10-year trust charges mean tax advantages can be limited. And courts don’t always respect attempts to shield assets from care costs. See Chugtai v HMRC (2025).
2. The hidden costs
Setting up a trust involves legal fees, valuations, and often ongoing professional charges. On top of that, many trusts have to file annual tax returns and pay their own tax on income or gains.
What starts as a “clever idea” can turn into an expensive administrative burden.
3. Changing tax rules
The UK government has repeatedly tightened the tax treatment of trusts. Reliefs have been reduced, reporting requirements increased, and anti-avoidance measures expanded. What looked smart 15 years ago may no longer work today.
4. The review gap
One of the biggest pitfalls isn’t the trust itself, but the failure to review it. Families assume “it’s sorted” once the paperwork is signed. But life moves on — beneficiaries die, move abroad, or fall out. The result? Outdated structures that cause more harm than good.
5. When trusts do make sense
Trusts still have their place. They can protect vulnerable beneficiaries, manage wealth for under-18s, or hold life insurance outside an estate. But the key is fit-for-purpose design, not “off-the-shelf” solutions.
Bringing it together
Trusts aren’t bad. They’re just often misunderstood. For many families, setting one up is less about saving tax and more about adding unnecessary cost and complexity.
Before setting up a trust, or if you already have one, ask for an impartial review. The best estate planning isn’t about clever tricks. It’s about simplicity, transparency, and making sure your wealth genuinely benefits the people you want it to.
Nic Round is a Chartered Financial Planner and Chartered Wealth Manager, authorised and regulated by the Financial Conduct Authority.