Lifetime trust

What is a lifetime trust?

A lifetime trust offers a strategic way to safeguard your valuable assets while maintaining access to them during your lifetime. Sometimes referred to as asset protection trust, property protection trust or a living trust, they are established immediately and can provide long-term security and flexibility.

Setting up a lifetime trust has many benefits where it can allow you to continue to benefit from your assets while planning for your future and the future of your loved ones. A lifetime trust can protect assets from financial difficulties, including bankruptcy and provide for beneficiaries with mental health issues.

However, they can be quite complex to navigate which is why it can be beneficial to obtain lifetime trusts legal advice.

How does a lifetime trust work?

Setting up a lifetime trust involves multiple key steps, each designed to ensure any money, property and other high value assets are held and managed how you would like them to be.

• Select trustees: You’ll need to choose one or more trustees. These can be trusted family members, friends or professional institutions. Trustees have a legal duty to manage assets and understand their responsibilities.
• Identify assets to fund the trust: Decide which assets you want to place in trust, e.g. property, investments, money or valuable personal items. Each asset will need to be formally transferred into the trust.
• Defining the beneficiaries: Decide who will benefit now or in the future—children, grandchildren, charity or any other person or entity.
• Set the terms of the trust: You can specify when and how distributions are made (for example, on reaching a certain age).

What types of assets can I put into a lifetime trust?

You can transfer a wide range of assets into a lifetime trust, including:

• Cash and savings accounts
• Investments such as stocks, bonds or unit trusts
• Residential or commercial property
• Shares in private companies or business interests
• Life insurance policies
• High-value personal items

Deciding which assets to place in a lifetime trust is a crucial strategic choice. While trusts offer powerful protection against creditors, relationship breakdowns and inheritance complications, they aren’t a one-size-fits-all solution. Rushing into a trust arrangement without specialist legal guidance can lead to unexpected tax charges, loss of flexibility or administration headaches down the line.

At Slater and Gordon, our lifetime trusts expertise ensures you will get the information you need to make the right decision. Speak to our specialists today to discuss whether a lifetime trust is right for you.

What are the advantages of setting up a lifetime trust?

A lifetime trust can be a proactive approach to wealth management, allowing you control over your assets whilst you’re alive, as well as ensuring a smoother transition to your beneficiaries after you pass away. Unlike will trusts, a living trust is established in your lifetime, that offers a range of benefits.

Transferring the ownership of property and other assets into a lifetime trust, the assets are then safeguarded from any personal legal and financial challenges someone may face in their lifetime, such as from bankruptcy. As the trust itself holds the title, the assets are safe from any unforeseen demands.

A living trust also lets you dictate how, when, and under what conditions beneficiaries receive their inheritance. Whether you prefer staged distributions at certain ages, conditional releases tied to milestones like graduation, or ongoing discretionary support, the trust’s precise terms prevent premature access or misunderstandings and align payouts with your long-term intentions.

One of the most powerful features of a living trust is it can address potential future incapacity. By appointing a trusted successor trustee and laying out detailed management instructions, you ensure your affairs continue without interruption if you become mentally or physically unable to handle them yourself. This pre-empts the need for court-supervised guardianship and spares your family from time-consuming proceedings.

Assets held within a lifetime trust do not pass through probate, the public court process required to validate wills. Bypassing probate accelerates asset distribution, keeps your affairs private, and reduces administrative costs and delays. Beneficiaries gain quicker access to their inheritances, and your estate avoids the uncertainty and expense often associated with probate filings.

Can I use a lifetime trust to avoid residential care home fees?

While many people consider using a lifetime trust to protect their home from being used to fund residential care, this approach carries legal risks, particularly around deliberate deprivation of assets. If a local authority believes the trust was set up primarily to avoid care fees, they can still include the value of the home in your financial assessment.

There’s no time limit on how far back they can look, and the key factors are your intent and whether care needs were foreseeable at the time. Due to this, it is recommended to get specialist legal advice and the legal experts at Slater and Gordon will help ensure your trust is compliant and offers the protection you intend.

What are the tax implications of a lifetime trust?

A lifetime trust can be a valuable estate planning tool, but it comes with important tax implications. Inheritance Tax may be charged at 20% on assets placed into the trust above the £325,000 threshold, with a potential 10-year anniversary and exit charges of up to 6%. Capital Gains Tax can also apply if trust assets are sold, with a lower annual exemption than for individuals, and any income generated by the trust is subject to Income Tax, often at higher rates.

These rules are complex and vary depending on the type of trust and how it’s managed, so it’s essential to seek expert legal advice. Our specialist tax solicitors can help you navigate these issues and ensure your trust is both compliant and tax efficient.

What happens to my lifetime trust after I die?

When you set up a lifetime trust, you retain the right to use the assets within it, such as remaining in your home, throughout your lifetime. After you die, those assets are passed on to the named beneficiaries according to the instructions you’ve set out in the trust deed, bypassing probate and ensuring a smoother transition.

As the distribution of assets depends on how the trust is structured, it’s essential to seek legal assistance to ensure your wishes are clearly defined. Slater and Gordon’s trust specialists can help you understand and create a trust that protects and supports you and your loved ones.

What should I consider when setting up a lifetime trust?

When setting up a lifetime trust, it’s important to consider several factors to ensure it offers the right protection and aligns with your long-term goals. You’ll need to think about how to safeguard high-value assets during your lifetime, how to secure your family’s financial future, and how your assets should be managed or distributed after your death.

Planning for potential incapacity is also crucial, as is understanding the tax implications. Choosing the right trustees and understanding their responsibilities is essential to ensure your trust is properly managed. Given the complexity involved, expert legal guidance is strongly recommended to ensure your trust is set up correctly and delivers the protection you need.

Why choose Slater and Gordon’s lifetime trust lawyers?

Our dedicated and empathetic team of experts have a wealth of experience in dealing with lifetime trusts and supporting those in need of support. With several years of experience, our team are adept at handling a range of complex cases, including high-value cases.

Our specialists are on hand to carry the complex burden lifetime trusts can appear to be and offer advice on helping you to understand whether a lifetime trust is right for you. As trusts are incredibly complex, our solicitors can offer support and guidance throughout the process of setting up a lifetime trust as well as offering tailored advice on potential alternative solutions where a lifetime trust does not offer the results you want. Our commitment to excellence is reflected in our team's membership to the Society of Trust and Estate Practitioners (STEP). We take pride in our achievements, highlighting our dedication to providing high-quality legal services in this complex legal field.