Generational Wealth isn’t just for the ultra-rich — it’s about building a financial legacy that benefits your children, grandchildren, and beyond. One of the most effective ways to do that in the UK is by using trusts.
In this article, we’ll explain what generational wealth means in the UK, how trusts can help protect it, and some important caveats to consider.
What Is Generational Wealth?
Generational wealth refers to valuable assets passed down from one generation to the next. In the UK, this could include:
- Property (your home or buy-to-lets)
- Cash savings or Premium Bonds
- Stocks and shares
- Pension pots
- Businesses
- Valuable heirlooms or art
What Is a Trust?
A trust is a legal arrangement where one party (the settlor) puts assets under the control of someone else (the trustee) for the benefit of another (the beneficiary).
Think of it like putting your money or property in a safety box, choosing someone you trust to look after it, and leaving instructions for how and when it should be passed on.
How Trusts Help Build and Preserve Generational Wealth
- Avoid Probate Delays: Trust assets can be passed on more quickly and privately than through a Will.
- Control the Flow of Money: Set terms for when and how beneficiaries receive their inheritance.
- Protect Family Wealth: Trusts can shield assets from divorce settlements, care home fees, or creditors.
- Mitigate Inheritance Tax: Some trusts help reduce your family’s IHT burden — though rules can be complex.
Common Types of Trusts in the UK
- Bare Trusts: Simple, with assets going to beneficiaries at age 18. Common for young children.
- Discretionary Trusts: Trustees decide how and when assets are distributed. Good for flexibility and protection.
- Interest in Possession Trusts: One person receives income during their life, with capital passing to others later.
- Property Trusts: Protect a share of your home from care fees or remarriage scenarios.
How to Set Up a Trust in the UK
- Clarify Your Goals: Do you want to reduce IHT, support children, or protect from risks?
- Choose the Right Type of Trust: Get legal advice based on your situation.
- Appoint Trustees: Choose reliable individuals or professional services.
- Draft the Trust Deed: A solicitor will write this legal document to set your rules.
- Fund the Trust: Move assets (e.g. money, property) into the trust’s name.
Common Pitfalls and Caveats
- Complex Tax Rules: Some trusts attract 10-year periodic charges and require ongoing administration.
- Setup Costs: Legal and financial advice is essential — and not always cheap.
- Not Reviewing the Trust: Outdated trusts can cause disputes. Review every few years.
- Poor Trustee Choices: Mismanagement can be costly. Consider using a professional trustee.
Did You Know? Assets transferred into a trust may still count toward your estate for up to 7 years — this is known as the “7-year rule” in inheritance tax planning.
Final Thoughts: Are Trusts Right for You?
Trusts can be a smart way to protect and pass on generational wealth in the UK — but they require care, planning, and good advice. Even families with modest estates can benefit, especially when trying to reduce inheritance tax or protect vulnerable beneficiaries.
Whether you’re a parent, grandparent, or business owner, it’s worth exploring how a trust could help secure your legacy for future generations.