A guide to trusts, estates, and succession planning
For high-net-worth individuals, wealth preservation is not just about maintaining capital. It’s about legacy, maintaining financial security, and ensuring that future generations are equipped to manage the family’s assets. Substantial wealth has a complex nature because it introduces a range of legal, tax, and relational considerations. Trusts, estate planning, and succession strategies are essential for securing long-term wealth preservation.
Trusts: Structuring control and safeguarding assets
A trust is a legal arrangement for managing assets. It includes money, investments, land, and property.1 There are various types of trusts, and each is taxed differently.2 Trusts are one of the most effective and versatile tools available for estate planning. They offer a structured way to protect assets, manage and transfer trust assets in line with your intentions. However, not all trusts operate in the same way. The UK’s trust framework comes with its own distinct set of rules and considerations. These can initially appear to be quite complex.
When it comes to trusts, misconceptions are common. Here are some persistent myths:
Setting up a trust means losing control over your assets
Many assume that placing assets into a trust means handing over complete control. In reality, many types of trusts allow you to maintain significant oversight and flexibility. These include revocable (also known as living trusts) or discretionary trusts.
Trusts are purely for avoiding taxes
Trusts can undoubtedly play a vital role in tax planning, but their benefits extend far beyond tax mitigation. Trusts can protect assets like the family home. They can ensure business continuity and avoid the probate process. They can also preserve privacy and help manage complex family dynamics.
Trusts are too complicated to bother with
Trust law can indeed be complex, particularly when it comes to specific tax rules. However, with the right professional guidance this can be made simple. Financial advisors can tailor trusts to your specific needs and objectives.
Trusts are only valid after death
Many trusts are designed to function during your lifetime. They provide wealth preservation, effective succession planning , and financial management while you’re still alive. They can also offer continuity in the event of incapacity. This offers peace of mind that your affairs will be managed according to your wishes.
Estate planning beyond your will
A common misconception is that estate planning begins and ends with setting out a will. For affluent families, estate planning is a broad process. It integrates financial, tax, legal, and personal considerations into a cohesive plan.
Effective estate planning can:
- Minimise estate and inheritance tax liability. This occurs through structured lifetime gifting, charitable donations, and trust structures.3 It can also involve investing in other assets that are exempt from Inheritance Tax. For example, those that qualify for business or agricultural relief.
- Provide clear instructions for wealth distribution, ensuring beneficiaries understand their roles and responsibilities.
- Establish powers of attorney and healthcare directives to manage assets and healthcare decisions should the need arise.
- Help international families navigate cross-border assets and citizenship issues.
Additionally, careful planning around capital gains tax is vital, especially when managing the sale or transfer of assets. It's particularly important for high-net-worth families looking to protect assets.
We recommend working with financial advisors early on in the process. Experts can help identify strategies to minimise tax liabilities and ensure your estate plan aligns with your financial goals.
Regular review is also critical. Tax laws evolve, family dynamics shift, and investment portfolios change. So estate plans must remain agile to reflect current goals and legal environments.
Succession planning: preparing the next generation
Family wealth can include operating businesses, real estate holdings, or investment entities. These often require thoughtful effective succession planning. Without a clear plan, the transfer of ownership can lead to financial instability.
An effective succession plan should:
- Identify and develop future leaders within the family or beyond.
- Clearly define roles, governance structures, and decision-making protocols.
- Ensure continuity of business vision while respecting the family’s values and legacy.
Russell Douglas, Senior Regional Director at Mercer Private Wealth says:
“In their simplest form, trusts are a really useful way for a donor to make a gift yet retain control of the trust assets. This includes when the beneficiary receives it. But their use goes way beyond that, as this article explains. One very attractive benefit is tax planning. Trusts can play a very important part in this. However, there are other ways of achieving tax efficient estate planning without the use of trusts. One example is investing in assets that qualify for Business Relief and/or Agricultural Property Relief. It's really important to seek the right financial and legal advice. Financial and estate planning can be a very complex area. It's especially important with the fiscal tightening we are experiencing in the UK”.
In summary
Preserving substantial wealth requires more than technical expertise. It also needs foresight, discipline, and ongoing stewardship. Trusts, estate planning, and wealth preservation strategies form the foundation, but values and expert guidance are the backbone of financial planning. This aids high-net-worth families to effectively protect assets and pass on their legacy. It also helps minimise inheritance tax liability and manages investment risk.
Sources
1. gov.uk/trusts-taxes
2. gov.uk/trusts-taxes/types-of-trust
3. gov.uk/inheritance-tax
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