Trusts are often seen as the “gold standard” of estate planning. When they are done right, they offer unparalleled control over how your hard-earned assets are managed and distributed. But here is the catch: because trusts are such powerful legal tools, they are also prone to being misunderstood.
At Judge Law, we often see families who have been led down a path of expensive assumptions. Many trust problems don’t appear overnight; they stem from predictable mistakes made during the setup phase, often because someone was looking for a “quick fix” rather than a robust legal structure. Whether it’s an unclear deed or an unsuitable trustee, a small error today can become a massive legal bill for your beneficiaries tomorrow.
Before you dive into the world of Trusts and Estate Planning, it is vital to separate the myths from the legal reality.
Mistake: Treating Trusts as “Products”
One of the most dangerous assumptions is viewing a trust as a “product” you can simply buy off a shelf. You might see advertisements for “Asset Protection Packages” or “Probate Avoidance Kits.” This marketing language suggests that a trust is a static, one-size-fits-all solution that guarantees a specific outcome.
In reality, a trust is a legal relationship. It is an ongoing obligation where trustees hold assets for the benefit of others. If a trust is sold to you as a generic product, it often ignores the nuances of your specific family dynamic, the nature of your assets, and your long-term goals.
The danger of the “product” mindset is that it leads to a “set and forget” attitude. Families may sign the papers but fail to actually “fund” the trust, meaning they never legally transfer the property or bank accounts into the names of the trustees. A trust deed without assets is essentially a hollow shell. To avoid this, you need to understand the different types of trusts and ensure the legal implementation matches the paperwork.
Mistake: Using Unregulated or High-Pressure Providers
In recent years, the UK legal market has seen a surge in unregulated will-writing and estate planning services. While these providers often offer lower upfront costs, they do not carry the same regulatory oversight, professional indemnity insurance requirements, or stringent qualifications as a firm of solicitors.
The Competition and Markets Authority (CMA) has publicly investigated this sector, issuing guidance and cautions regarding unregulated legal services. Their concerns often focus on high-pressure sales tactics and the “upselling” of complex trust structures to people who may not actually need them.
From a legal perspective, the risk is twofold:
- Enforceability: If the document is poorly drafted by someone without deep legal expertise, it may be found invalid or unworkable when it is finally needed.
- Compliance: Unregulated providers may not stay updated on shifting case law or statutory requirements, such as the formalities required under the Wills Act 1837 if the trust is being created via a Will.
Infographic Idea: A checklist comparing ‘Regulated Solicitors’ vs ‘Unregulated Providers’, highlighting points like Indemnity Insurance, Statutory Compliance, and CMA Guidance.
Mistake: “Care Fees Protection” Claims Without Legal Analysis
Perhaps the most common “hard sell” in the trust industry involves the promise of protecting a home from future local authority care fees. You may have heard these called “Property Protection Trusts” or “Family Asset Protection Trusts.”
The common trust mistake here is assuming that putting your house in a trust creates an impenetrable shield against care costs. The legal reality is governed by the concept of “Deliberate Deprivation of Assets.”
If a local authority concludes that you transferred your home into a trust with the primary intention of avoiding care fee assessments, they have the power to “look through” the trust. They may assess your means as if you still owned the property. Public guidance from local authorities and major charities consistently highlights that there is no “magic bullet” for this. Every case is fact-sensitive, looking at your health at the time of the transfer and your foreseeable need for care.
| Assumption | Legal Reality |
|---|---|
| “A trust automatically hides my home from the council.” | Councils can challenge transfers if they suspect deliberate deprivation. |
| “If I survive 7 years, the house is safe from care fees.” | The 7-year rule applies to Inheritance Tax, not local authority care assessments. |
| “I can still live there and do whatever I want.” | Trustees have legal control; the deed must explicitly grant you occupation rights. |
Mistake: Choosing the Wrong Trustees
Choosing who will manage the trust is just as important as the trust itself. Many people make the mistake of choosing a trustee based purely on emotional closeness, usually a spouse, a sibling, or a child, without considering whether that person is actually capable of the job.
Being a trustee is a significant burden. It involves:
- Fiduciary Duties: A legal obligation to act in the best interests of the beneficiaries.
- Investment Decisions: Managing assets prudently to ensure the trust grows or maintains value.
- Tax and Record Keeping: Ensuring the trust is registered with the HMRC Trust Registration Service (TRS) and filing annual returns.
The Law Society recommends that anyone asked to be a trustee should seek independent legal advice before accepting. If you appoint a family member who lacks financial acumen or who is prone to conflict with other beneficiaries, you are essentially “baking in” a future dispute. Sometimes, appointing a professional trustee alongside a family member is the best way to ensure impartiality and competence. For more on this, see our guide on trustee roles and duties.
Mistake: Vague Drafting and Missing Governance
A trust deed is the “rulebook” for the trust. If the rules are vague, the game falls apart. We frequently see trust deed errors where the drafting fails to satisfy what lawyers call the “Three Certainties”:
- Certainty of Intention: It must be clear that a trust was actually intended.
- Certainty of Subject Matter: It must be clear exactly which assets are in the trust.
- Certainty of Objects: It must be clear exactly who the beneficiaries are.
Vague terms like “my friends” or “people who have helped me” without a clear definition are a recipe for disaster. Furthermore, many deeds lack “governance” clauses, rules on how trustees make decisions (is it a majority vote or must it be unanimous?) and how to resolve a deadlock if they can’t agree. Without these rules, the trust can become paralyzed, leading to expensive trust disputes that require court intervention to solve.
Mistake: Forgetting the Wider Estate Plan
A trust does not exist in a vacuum. One of the costliest common trust mistakes in the UK is failing to align the trust with the rest of your estate plan.
For example, if you create a trust in your Will, that trust is only as valid as the Will itself. If the Will fails to meet the formalities of Section 9 of the Wills Act 1837 (e.g., it wasn’t signed or witnessed correctly), the trust never comes into existence.
Similarly, you must consider how your trust interacts with:
- Lasting Powers of Attorney (LPAs): Who manages your affairs if you lose capacity but are still a trustee?
- Inheritance Tax (IHT) Planning: Some trusts can actually trigger immediate tax charges (Entry Charges) or ongoing periodic charges if they aren’t structured correctly.
- The Trust Lifecycle: People often forget that trusts have a maximum lifespan (usually 125 years) and need clear instructions on how they should eventually wind up or change.
FAQs
Q: Are trusts only for wealthy people?
A: Not at all. While they are great for tax planning, many families use them to protect vulnerable beneficiaries (like children or those with disabilities) or to manage life insurance payouts. The “mistake” is thinking they are only about money, they are actually about control.
Q: Can I change my mind once a trust is set up?
A: It depends on whether the trust is “revocable” or “irrevocable.” Most asset protection trusts are irrevocable, meaning once the assets are in, you can’t just take them back whenever you like. This is why professional advice is non-negotiable before signing.
Q: What is the risk of using an online template for a trust deed?
A: The risk is that the template may not be compliant with current UK law or may not include specific “powers” your trustees need to manage your specific assets (like a family business or a rental property).
Q: Can a family member be a good trustee?
A: Yes, provided they are organized, impartial, and willing to seek professional help when needed. The mistake is assuming they must do it alone.
Q: If I already have a trust that was drafted poorly, can it be fixed?
A: Often, yes. Depending on the terms, trustees may have the power to “vary” the trust, or an application can be made to the court. However, it is much cheaper to draft it correctly the first time.
Are you concerned about a trust you’ve already set up, or are you considering one for the first time? Don’t rely on assumptions. Whether you need a review of an existing deed or a bespoke structure for your family’s future, Judge Law is here to provide reassuring, expert guidance.
Disclaimer: This article provides general legal information for residents of England & Wales. It does not constitute tax or accounting advice. Always consult with a qualified professional regarding your specific circumstances.
