When people set up a trust, it’s usually done with the best of intentions. Protect the family, save tax, pass wealth smoothly down the generations. All noble goals.
But here’s the uncomfortable truth: a trust isn’t automatically a good idea. In fact, the wrong trust, or even a well-intentioned one managed poorly, can backfire spectacularly.
Mr Chugtai put a property and a bank account into trusts for his children more than 17 years before his death. On paper, that sounds like sensible estate planning. He excluded himself as a beneficiary, so far so good.
But here’s where things went wrong: during his lifetime, he continued to benefit from those assets. He used them. He enjoyed them. And HMRC were watching.
The result? The Gift with Reservation of Benefit rules kicked in. These rules are ruthless: if you give something away but still use it, the gift doesn’t count. For inheritance tax purposes, it’s as if you never gave it away at all.
So despite the legal documents, despite the passage of time, HMRC pulled the property and bank account back into his estate. The trust had failed in its purpose. The family faced a higher tax bill. And all those professional fees? Wasted.
The real problem: no one admits their own mistakes
Here’s the bit most people don’t want to hear. If you go back to the firm that set up the trust and ask them to review it, do you think they’ll tell you it was the wrong thing to do? Almost certainly not.
No adviser wants to admit their earlier advice was flawed. No lawyer wants to say the structure they drafted is ineffective. Which means the family is left believing they’re safe, until HMRC comes knocking years later.
Why you need an impartial review
This is why every trust should be reviewed by someone independent, someone with no emotional or financial interest in proving the original advice was “right.”
An impartial review can highlight:
Whether the trust is actually effective under current tax law.
If any “gift with reservation” risks exist.
Whether changes in family circumstances (divorce, remarriage, financial hardship) could undermine the plan.
Whether the trust still makes sense compared to today’s alternatives.
Trusts can be powerful tools. But they are not “set and forget.” They need ongoing scrutiny, and that scrutiny should come from someone who isn’t marking their own homework.
The takeaway
The Chugtai case is a wake-up call. Setting up a trust is not the end of the story. Without review, it can become an expensive illusion: false comfort, wasted fees, and a nasty inheritance tax surprise for your family.
If you already have trusts in place, don’t assume they’re working. Get them looked at, independently. Because the only thing worse than paying for a trust is finding out too late that it never did what you thought it would.
Book your review now.