Trusts Aren’t Just for the Ultra-Wealthy
Have you ever considered placing some of your assets into a trust, or have you assumed that, unless you own a multi-million-pound mansion, a superyacht moored off Monaco and an extensive art collection, such a structure would be out of reach?
Many people believe trusts are designed exclusively for ultra-high-net-worth individuals or those with complex international tax arrangements. The reality, however, can be very different.
At Alex Picot Trust, more than half of our clients are Jersey residents, demonstrating just how relevant trusts can be for local individuals and families. While some clients may have millions of pounds in assets to place into trust, these structures can also provide practical solutions for a much wider range of people. Trusts can help with succession planning, asset protection and ensuring wealth is passed on in line with an individual’s wishes.
What Assets Can Be Placed in Trust?
While yachts, classic cars and artwork may come to mind when discussing trusts, more everyday assets such as stocks, shares and property can also be suitable.
Property, however, can be more complicated than other assets, particularly in Jersey where local housing regulations must be considered. There can also be complexities relating to different forms of ownership, including freehold, flying freehold and share transfer properties, and whether these can be transferred into trust structures.
The Challenges of UK Property
Overseas property can create additional complications.
Many Jersey residents own property in the UK, and historically it was relatively straightforward to place UK real estate into a trust. However, changes introduced by the UK government in 2017 brought a range of tax implications for UK residential property held in trusts, both when the property is transferred into the trust and through ongoing ten-year charges.
For this reason, I would not necessarily recommend placing UK residential property into a trust without first obtaining specialist UK tax advice.
Beyond Tax Planning
When people think about trusts, tax planning is often the first benefit that comes to mind. Trusts can certainly play an important role in inheritance tax planning, particularly where children or grandchildren live in the UK.
However, tax efficiency is far from the only reason to consider a trust.
Trusts can be a highly effective asset protection tool, helping families keep assets together and preserve their long-term value.
Protecting Family Wealth
Trusts can provide reassurance in a variety of common family situations, many of which will resonate with people.
There may be family members who are not yet ready, willing or able to manage significant financial responsibilities due to age, maturity, poor mental health or strained family relationships. Trusts can also be valuable in cases involving divorce, blended families or multiple generations with differing needs.
While trust assets can still be considered during divorce proceedings, they generally provide a greater level of protection than assets held directly in an individual’s name.
For example, if someone inherits significant assets from their parents and owns them personally, those assets may become part of the discussion during a divorce. If the parents had instead settled those assets into a trust during their lifetime, an additional layer of protection may exist. While this is not a guarantee against claims, it can act as a significant deterrent.
Why Timing Matters
Divorce and bereavement are often the events that prompt people to review their estates, but trusts are best considered long before a difficult situation arises.
Much like a Will, trusts are often viewed as something to think about later in life. However, the key trigger should not be age but personal circumstances.
Even if a trust is established relatively early in life, it does not necessarily need to become active immediately. Many people create trusts as part of their estate planning strategy, safeguarding assets for future generations while specifying that the trust should only become fully active upon their death.
The Role of a Trust Deed and Letter of Wishes
Every trust is established through a trust deed, which sets out the terms under which the trust will operate.
Equally important is the accompanying letter of wishes. While not legally binding, this document provides valuable guidance to trustees by outlining:
- The purpose of the trust
- Who should benefit
- How assets should be invested
- Circumstances in which distributions should be made
The letter can be as detailed as the settlor wishes. It may specify that funds are to be used for education costs, helping beneficiaries purchase property, supporting charitable causes or other family priorities.
How Distributions Work
Although the trustees legally own and administer the trust assets, the beneficiaries are the individuals or charitable organisations designated by the founder of the trust.
Many trusts are established on a discretionary basis, meaning trustees have flexibility regarding both the timing and amount of distributions. Decisions are made by the trustees, guided by the terms of the trust deed and the settlor’s letter of wishes.
Getting the Structure Right from the Start
Ensuring that the trust is structured correctly from the outset is essential.
In the case of a Will trust, which takes effect after death, there are generally two approaches:
- Establish the trust during your lifetime and reference it in the Will.
- Create the trust through the Will itself.
My preference is generally the first option.
I have seen examples where trusts created solely through a Will contained overly restrictive provisions. These unintended limitations later created problems that were expensive and time-consuming to resolve.
Forced Heirship Considerations
Another important consideration in Jersey is forced heirship, where legal rights can sometimes override the intentions expressed in a Will.
To minimise the risk of disputes, I encourage people to have open conversations with their family members. Surprises after death can often lead to misunderstandings, conflict or challenges to an estate plan.
While discussing death is uncomfortable for many people, it remains an inevitability. The earlier these conversations take place, the better.
For example, if a child expects to inherit assets directly but only discovers after their parents’ death that a trust has been established instead, this may create tension and increase the likelihood of a legal challenge.
Communication is therefore just as important as planning itself.
Trusts and Business Ownership
Trusts are not limited to personal assets.
Companies can also be owned by a trust, with the trust becoming the shareholder either during the owner’s lifetime or after their death.
Where ownership is transferred during the individual’s lifetime, they can continue running the business as before, while benefiting from the additional protections a trust structure may provide.
Business Succession Planning
Business owners should also consider what happens to the company when they are no longer around.
If a sole director dies unexpectedly, the business can be left without leadership, creating significant administrative burdens for family members and employees.
For this reason, I encourage business owners to appoint at least one additional Jersey-resident director. This simple step can prevent many practical difficulties in the future.
Trusts Are More Accessible Than You Might Think
You certainly do not need £25 million in assets to justify establishing a trust.
In fact, someone with assets of around £3 million, much of which may simply be the proceeds from the sale of a family home, could find that a trust is an excellent way to support future generations.
At Alex Picot Trust, we work closely with clients to understand their objectives and determine what they want a trust to achieve. There is no one-size-fits-all solution.
Ultimately, successful trust planning comes down to communication: communication with family members and communication with trusted professional advisers to ensure the right structure is put in place for your individual circumstances.
This article was written by Hannah Roynon-Jones, view her profile here.
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