Discretionary Trusts

A discretionary trust gives trustees full authority over when, how, and to whom income or capital is distributed. Beneficiaries are named, but none have an automatic right to money from the trust, which means that assets are generally protected from bankruptcy, divorce claims, or irresponsible spending. These trusts are well suited for families wanting multi-generational wealth retention, especially where beneficiaries may relocate or face varying levels of financial maturity over time.

For UK expats, the tax treatment depends heavily on the settlor’s domicile at creation, the location of beneficiaries, and the situs of underlying assets. If the settlor is UK-domiciled, the trust may fall under the UK “relevant property regime,” potentially triggering 10-year periodic charges and exit charges when capital is distributed. Regular governance reviews, where appropriate, help keep the trust efficient, compliant, and future-proof.

Interest in Possession (Life Interest) Trusts

An interest in possession trust gives a named beneficiary (often a spouse or partner) a legal right to receive the income from the trust assets for life or for a fixed period. The capital itself is protected and usually earmarked for children or other “remaindermen” on the death of the primary beneficiary.

This structure works particularly well in blended family situations by ensuring the surviving spouse is financially supported while preserving wealth for children from a previous relationship. Investment strategy must balance income generation with long-term capital stewardship, and trustees must act impartially between present and future beneficiaries.

UK tax treatment varies depending on the settlor’s domicile and whether the trust is considered part of the life tenant’s estate. These trusts offer certainty but less adaptability than discretionary trusts, making careful legal drafting essential.

Loan Trusts

A loan trust allows the settlor to retain access to capital while removing future investment growth from their taxable estate. The settlor makes an interest-free loan to the trustees, who invest the funds—often within an offshore bond to simplify administration. The loan can be repaid gradually, creating a flexible income source, while any investment gains remain within the trust for beneficiaries, outside the settlor’s inheritance tax exposure.

This structure is technically straightforward and popular for those who do not wish to part fully with capital while still wishing to plan ahead for IHT. The key limitation is that the original loan value stays inside the estate until repaid, so it may take time for the estate-planning benefits to accumulate. Regular reviews ensure the trust continues to align with the settlor’s liquidity needs and long-term estate objectives.

Discounted Gift Trusts

A discounted gift trust is created when the settlor makes a lump-sum gift into a trust and retains a contractual right to regular withdrawals for life. An actuarial calculation determines what portion of the transfer is considered a retained benefit, which becomes the “discount.” This discounted element is treated as immediately outside the settlor’s estate for UK inheritance tax purposes. The remainder of the gift is a potentially exempt transfer (PET), falling outside the estate fully after seven years, assuming no UK domicile complications. Growth within the structure accrues outside the estate from day one. The settlor does not have access to the capital beyond the fixed withdrawal entitlement, which is why health underwriting is required at setup. Trustees control access for beneficiaries, ensuring that the value builds in a protected environment, but once withdrawals are agreed, the pattern cannot be changed later.

This structure works best for clients with surplus capital and predictable income needs who want estate reduction without sacrificing their lifestyle.

Beneficiary / Education Trusts

A beneficiary (or often education-focused) trust is established by making a gift of capital for the long-term benefit of children or grandchildren, particularly where support may be needed at different life stages or across multiple jurisdictions. The settlor gives up rights to the assets, and trustees gain full control over when and how funds are released. This prevents premature inheritance and enables responsible financial oversight, especially for young beneficiaries or those still developing financial independence.

Typical uses include school or university fees, first-home assistance, or structured support throughout early adulthood. The trust provides protection from local laws, relationship disputes, and creditor issues, while also preventing funds from inadvertently passing into the estates of parents. The tax treatment depends on the settlor’s domicile and the situs of trust assets, and because trustees can adapt distributions to circumstances, these trusts are particularly useful for expat families whose beneficiaries may move between different tax systems over time.

Probate Trusts

Primarily an administrative solution to avoid multi‑jurisdictional probate delays. Trustees already hold legal title; on death, assets can be administered quickly and privately. Particularly useful with offshore bonds. Not a tax mitigation tool in itself.