Revocable & Irrevocable Trusts 

What a Trust Really Is...

Think of your trust as a security box, simple as that.

They’ve been around for hundreds of years - in fact the Knights of the Crusades used them to protect their castles and land whilst they were away and, in those days, they were set up by Monks because they were the people who could read and write and, because they had taken a vow of poverty, they were trusted never to run off with the assets. 

Like most things today, we now need to put a bit of legal wording around them so they are recognised by the courts and the tax man, but if we go back to the idea of that security box it keeps things simple!  These days a lawyer needs to set it up, but you (the Settlor) decide who will manage it (the Trustees), and you decide who should benefit from the assets you place inside it (the Beneficiaries).

Here's some jargon explained...

Revocable vs Irrevocable Trusts

Trusts can broadly be categorised as revocable or irrevocable:

• Revocable Trusts (or Living Trusts) allow the person who creates the trust (the Settlor) to retain control over the assets. The Settlor can modify the trust, add or remove assets, change beneficiaries, or even revoke it entirely. This flexibility makes revocable trusts ideal for managing assets during life and avoiding the delays of probate. However, assets in a revocable trust remain part of the estate for tax purposes and offer limited protection from creditors.

• Irrevocable Trusts cannot be altered or revoked without the consent of all beneficiaries or a court order. Once assets are transferred into the trust, the Settlor gives up ownership and control. This makes irrevocable trusts particularly useful for:

  • Asset protection – shielding assets from creditors or legal claims

  • Tax planning – removing assets from your estate can reduce inheritance tax liability

  • Ensuring controlled distribution – allowing trustees to distribute assets according to your instructions over time

The trade-off with irrevocable trusts is less flexibility, but greater security and certainty for beneficiaries.

Discretionary vs Fixed Trusts

Trusts can also be structured as discretionary or fixed (also know as absolute trusts):

• Discretionary Trusts give the trustee flexibility to decide how and when beneficiaries receive assets. This is useful when beneficiaries may need financial support over time or when circumstances are uncertain.

• Fixed Trusts specify exactly who receives what, when, and how. This structure provides certainty, but almost no flexibility if circumstances change.

Tax Implications

Trusts can have significant tax benefits. Irrevocable trusts, for example, often remove assets from the Settlor's estate, potentially reducing inheritance tax. Income generated within the trust may also be taxed differently depending on the trust type and structure. However, trusts are subject to rules that are not alwasy straighforward to understand, so professional advice is essential to ensure compliance and maximise benefits.

Practical Uses of Trusts

Trusts are widely used for:

• Passing wealth to children or grandchildren while controlling access

• Protecting family assets from divorce, bankruptcy, or creditors

• Supporting vulnerable beneficiaries, such as minors or people with disabilities

• Avoiding probate delays and managing estates efficiently

Final Thoughts

Choosing the right type of trust depends on your goals. Revocable trusts provide flexibility, while irrevocable trusts can offer absolute certainty and tax efficiency. Combining trust types, such as an irrevocable trust for inheritance tax planning alongside a revocable trust for daily management, can offer a comprehensive strategy.

A well-structured trust can provide peace of mind, ensure that your assets are managed responsibly, and protect your family’s financial future. Always seek professional legal and financial advice when setting up a trust to ensure it meets your needs and complies with current laws.

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