How to pass on assets to vulnerable family members

When creating an estate plan, you may wish to pass wealth to loved ones who aren’t in a position to manage their finances. Establishing a trust can offer a practical solution, allowing you to provide for a vulnerable individual while ensuring their assets are managed responsibly.

Trusts aren’t used as commonly as other ways to pass on assets/wealth, such as gifting or leaving an inheritance directly. In fact, according to government figures, there were only around 733,000 trusts and estates registered on the Trust Registration Service as of March 2024. Yet, in some circumstances, a trust could present a valuable option. 

Using a Trust to Provide for Vulnerable Loved Ones
There are many situations where you might hesitate to pass assets directly to someone, whether due to vulnerability or other concerns. Trusts can offer a practical solution, ensuring assets are managed responsibly while improving the financial security of your loved ones.

You might consider using a trust if you wish to provide for:

• A child who isn’t yet ready to manage finances.
• Someone at risk of financial abuse.
• An individual with a history of poor financial decisions.
• An adult with a disability that impacts their ability to manage money.

How a Trust Works
A trust is a legal arrangement where you, as the settlor, transfer assets to be managed by a trustee on behalf of a beneficiary. This allows the beneficiary to benefit from the assets without taking responsibility for managing them.

As the settlor, you define the terms of the trust, including how and when the assets can be used. For example:

• If you wish to provide for a grandchild, you might appoint their parents as trustees and specify that funds can be withdrawn for educational costs, with full control passing to the child at age 25.
• For a disabled adult, you might establish a trust that provides regular income for their lifetime.
  This flexibility means trusts can be tailored to suit your goals and provide peace of mind that your loved ones’ financial needs will be met.

Important Considerations
While trusts offer many benefits, they can be complex and, in many cases, difficult or impossible to reverse once established. There are several types of trusts, each with its own rules and tax implications.

Seeking professional legal advice before setting up a trust is essential to ensure it aligns with your intentions and is structured effectively for your situation.

A trust means someone you choose can manage assets on behalf of beneficiaries 

A trust is a legal arrangement that you (the settlor) set up where assets are managed by a person or people (the trustee) for the benefit of one or multiple other people (the beneficiary).

So, while the beneficiary may benefit from the assets, it’s the trustee who will manage them. As the settlor, you can set out how and when you want the assets, and any income they generate, to be used.

For instance, if you want to pass on assets to your grandchild, you might name their parents as trustees. You could state money may be withdrawn from the trust to cover educational costs and, once the child turns 25, they can withdraw and take control of the remaining assets.

Or, if you want to provide for a disabled adult, you might create a trust that states the trustee is to provide the beneficiary with a regular income for the rest of their life. 

Crucially, as the settlor, you can set the terms of the trust so that it suits your goals. 

You should note that there are several different types of trust and, once set up, it can be difficult or impossible to reverse the decisions you’ve made. So, seeking professional legal advice if you think a trust could be an option for you may be valuable. 

1. Who Should Act as the Trustee?
Choosing the right trustee is a critical decision. You’ll need someone you trust to act in the best interests of the beneficiaries and carry out your wishes responsibly. Consider:

• Does this person have the financial acumen to manage the assets effectively?

Are they organised and reliable enough to handle the responsibilities of being a trustee?
You can appoint more than one trustee and decide if they must make decisions collectively or independently. Alternatively, you could hire a professional trustee, such as a solicitor or financial planner, who would charge a fee for their expertise.

2. What Is the Aim of the Trust?
Understanding your goals for the trust will influence the type of trust you create and the terms you set.

• Is the trust intended to hold assets until a specific date?

Are you aiming to preserve family wealth for future generations?
In some situations, other financial solutions might better meet your needs. For instance, if you want to save for a grandchild to access funds at age 18, a Junior ISA (JISA) could be a simpler and more tax-efficient alternative, allowing you to contribute up to £9,000 in 2024/25 while avoiding the complexity of a trust.

3. How Much Control Would You Give the Trustee?
You’ll need to decide whether to set strict rules for how the trust operates or give the trustee flexibility to make decisions. This choice depends on your specific goals and concerns:

• Should the trust provide a regular income, and if so, how should inflation be accounted for?
• Should the trustee have the authority to withdraw lump sums for emergencies or significant opportunities?
• At what point, if any, should beneficiaries take full control of the assets?

While clear restrictions can ensure your wishes are followed, they can sometimes create unintended challenges. For example:

• A rigid rule preventing lump-sum withdrawals might block a beneficiary from using trust assets as a property deposit, which could reduce their long-term living costs.
• In a medical emergency, limited access to trust funds might delay treatment or reduce available options.

Contact us to talk about your estate plan 

A trust is often just a small part of an effective estate plan. If you’d like to discuss how you might pass on assets to loved ones in a way that aligns with your goals and considers your wider financial plan, please get in touch. 

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. 

The Financial Conduct Authority does not regulate estate planning, tax planning, or trusts.