Legacy protection is the stuff nobody wants to think about. Death, incapacity, family disputes over money, HMRC taking 40% of everything you worked for. Cheerful topics, all of them.
But here’s the thing: planning for this stuff while you’re healthy, clear-headed, and very much alive is exactly what separates families that sail through difficult times from families that don’t. The legal system has default rules for what happens when you die or lose capacity. Those defaults are almost certainly not what you’d choose.
So let’s make sure you actually choose.
Investing in a Trust
A trust is a legal arrangement where one person (the settlor) transfers assets to another person or people (the trustees) to hold and manage for the benefit of someone else (the beneficiaries). You give up ownership of the assets. The trustees look after them. The beneficiaries benefit from them.
That sounds simple, but trusts are extraordinarily flexible. They can protect assets from creditors, reduce inheritance tax, provide for vulnerable people, control how wealth passes between generations, and keep family money out of the wrong hands (including divorcing spouses, which is more common than anyone likes to admit).
Types of Trust
Bare Trust (Absolute Trust)
The simplest type. The beneficiary has an absolute right to the capital and income at age 18. The trustees are just custodians with no discretion. Once the beneficiary turns 18, they can demand the lot.
- Best for: children’s savings, Junior ISAs (technically held in bare trust), and straightforward gifts
- Tax: income and gains are taxed as the beneficiary’s (useful if the beneficiary is a non-taxpayer)
- Limitation: you can’t control what happens after 18. If the beneficiary wants to spend it all on something unwise, that’s their right
Discretionary Trust
The most flexible type. The trustees decide who benefits, how much they get, and when. No beneficiary has an automatic right to anything. The trustees have full discretion within the terms of the trust deed.
- Best for: IHT planning, protecting assets for future generations, providing for beneficiaries who can’t manage money themselves
- Tax: complex. Gifts into a discretionary trust are Chargeable Lifetime Transfers (CLTs). If the total exceeds the nil-rate band (325,000), there’s an immediate 20% IHT charge. There’s also a 10-yearly periodic charge (up to 6% of the trust value) and exit charges when assets leave the trust
- Limitation: expensive to set up and administer. Requires active trustee management
Interest in Possession Trust (Life Interest Trust)
One named beneficiary (the “life tenant”) has the right to receive income from the trust assets for their lifetime. When the life tenant dies, the capital passes to someone else (the “remainderman”).
- Best for: providing for a surviving spouse while ensuring the underlying capital eventually passes to children (very common in second marriages)
- Example: you leave your share of the family home in trust. Your spouse can live in it for their lifetime. When they die, the house passes to your children, not to the spouse’s new partner or their children
- Tax: the life tenant is taxed on the income. On the life tenant’s death, the trust assets may be subject to IHT as part of their estate
Flexible Trust
A hybrid. Starts as a discretionary trust but can be converted to an interest in possession trust. Gives maximum flexibility to the trustees to respond to changing circumstances.
- Best for: situations where you’re not sure how things will play out (most situations, honestly)
- Commonly used with life insurance policies written in trust
Loan Trust
You lend money to a trust (interest-free) rather than gifting it. The trust invests the money. The growth belongs to the trust (outside your estate for IHT), but you can recall the loan at any time. You retain access to your original capital while the growth benefits your beneficiaries.
- Best for: people who want to do IHT planning but aren’t comfortable giving away capital they might need
Discounted Gift Trust
You make a gift to a trust but retain the right to receive regular payments from it (the “discount”). The value of those retained payments reduces the value of the gift for IHT purposes. The remainder grows outside your estate.
- Best for: people who want income from their capital but also want to reduce their IHT liability
- Complex. Requires professional advice
Common Uses of Trusts in Financial Planning
- Life insurance in trust: ensures the payout goes to beneficiaries quickly and IHT-free
- Investment bonds in trust: IHT planning while retaining some access or control
- Property in trust: protecting the family home from care fees or ensuring it passes to the right people
- Protecting vulnerable beneficiaries: people with learning disabilities, mental health conditions, or poor money management
- Protecting against divorce: assets in a trust may be harder for an ex-spouse to claim in a divorce settlement (though not impossible)
Trust Taxation Summary (2026/27)
| Trust Type | Income Tax | CGT | IHT Entry Charge | 10-Year Charge |
|---|---|---|---|---|
| Bare Trust | Beneficiary’s rates | Beneficiary’s rates | PET (no charge if survive 7 years) | None |
| Discretionary | 45% (dividends at 39.35%) | 24% (after 1,500 exemption) | 20% over NRB (325,000) | Up to 6% of trust value |
| Interest in Possession | Life tenant’s rates | Trustees at 24% | Depends on when created | Depends on type |
| Flexible | Depends on structure | Depends on structure | Depends on structure | Depends on structure |
Trusts are powerful but complex. Always take professional advice before setting one up.
Wills
A will is a legal document that sets out who gets what when you die. Without one, the law decides for you. And the law’s choices might surprise you.
What Happens Without a Will (Intestacy Rules, 2026/27)
If you die without a valid will in England and Wales:
| Your Situation | Who Gets What |
|---|---|
| Married/civil partnership, no children | Spouse gets everything |
| Married/civil partnership, with children | Spouse gets personal possessions + first 322,000 + half the remainder. Children share the other half equally |
| Unmarried partner, with or without children | Partner gets NOTHING. Regardless of how long you’ve been together, whether you have children, or whether they live in your house |
| Single, no children | Estate passes to parents. If no parents, to siblings. Then half-siblings, grandparents, aunts/uncles, and so on |
| No living relatives at all | Everything goes to the Crown (the government). This is called “bona vacantia” |
The unmarried partner rule catches people out more than anything else. If you live with someone but aren’t married, they have zero automatic inheritance rights. They could be left homeless and penniless while the estate passes to your parents or siblings. A will fixes this in five minutes.
What a Will Should Cover
- Who gets what (specific gifts of money, property, possessions, and the “residuary estate” (everything that’s left))
- Guardians for minor children (who looks after your children if both parents die)
- Executors (who administers the estate, manages probate, and distributes assets)
- Trusts (if you want assets held in trust for children, vulnerable beneficiaries, or to control timing)
- Funeral wishes (not legally binding but helpful for your family)
- Digital assets (social media accounts, crypto wallets, online subscriptions)
Types of Will
- Simple will: straightforward distribution to named beneficiaries. Suitable for most people
- Mirror wills: two matching wills (typically for married couples) leaving assets to each other, then to children
- Discretionary will trust: includes a discretionary trust in the will, giving trustees flexibility over how assets are distributed after your death
- Living will (advance directive): sets out your wishes for medical treatment if you lose capacity. Not the same as a will about inheritance, but often prepared at the same time
How Much Does a Will Cost?
- Online will services: 30-150 (suitable for simple situations)
- Solicitor-drafted simple will: 200-500
- Complex will (trusts, business assets, overseas property): 500-2,000+
- Free Will Month: every October and March, many solicitors offer free simple wills through charity partnerships
Review Your Will
A will isn’t a “set and forget” document. Review it after:
- Marriage (a marriage automatically revokes all previous wills unless the will was made in contemplation of that specific marriage)
- Divorce (provisions for your ex-spouse are automatically revoked, but the rest of the will stands, which may not be what you want)
- Having or adopting children
- Death of a beneficiary or executor
- Significant changes in wealth (inheritance, property purchase, business sale)
- Changes in tax law (particularly IHT thresholds and reliefs)
Power of Attorney
A Power of Attorney is a legal document that lets you appoint someone you trust to make decisions on your behalf if you become unable to make them yourself. This is about incapacity, not death. Wills handle death. Powers of Attorney handle the bit before.
Why It Matters
If you lose mental capacity (through dementia, stroke, brain injury, or serious illness) without a Power of Attorney in place:
- Nobody can access your bank accounts (not even your spouse)
- Nobody can manage your investments or pensions
- Nobody can sell your property (even to pay for care)
- Nobody can make medical decisions on your behalf
Your family would have to apply to the Court of Protection for a Deputyship order. This is:
- Slow (3-6 months minimum, often longer)
- Expensive (application fee 371, plus solicitor costs of 1,000-3,000+, plus annual supervision fees)
- Uncertain (the court may appoint someone you wouldn’t have chosen)
- Ongoing (the deputy must report to the court annually, pay annual supervision fees, and get court permission for certain decisions)
Compare that to setting up an LPA: 82 registration fee per LPA, done online in under an hour, and you choose who makes decisions.
Types of Lasting Power of Attorney (LPA)
1. Property and Financial Affairs LPA
Covers decisions about your money, property, and financial affairs:
- Managing bank accounts and investments
- Paying bills and managing debts
- Buying, selling, or renting property
- Dealing with tax affairs
- Managing pensions and benefits
Can be used while you still have capacity (if you grant permission) or only when you lose capacity. Useful for practical situations (e.g. someone managing your finances while you’re travelling or recovering from surgery).
2. Health and Welfare LPA
Covers decisions about your health, care, and personal welfare:
- Medical treatment decisions (including consenting to or refusing treatment)
- Where you live (care home decisions)
- Day-to-day care (washing, dressing, eating)
- Life-sustaining treatment (if you choose to give this authority)
Can only be used when you’ve lost capacity to make these decisions yourself.
Who Should Be Your Attorney?
- Must be over 18 and have mental capacity themselves
- Can be a family member, friend, or professional (solicitor, accountant)
- You can appoint more than one attorney
- They can act jointly (must all agree on every decision), jointly and severally (can act together or independently), or a combination
- Choose someone you trust completely. They will have significant power over your life and finances
The Process
- Complete the LPA form (online at gov.uk/lasting-power-of-attorney or on paper)
- Choose your attorney(s) and any replacement attorneys
- Choose a “certificate provider” (someone who confirms you understand what you’re signing and aren’t being pressured)
- Sign the documents (you, your attorneys, and the certificate provider)
- Register with the Office of the Public Guardian (OPG). Fee: 82 per LPA (2026/27). People on certain benefits may be exempt
- Registration takes 3-4 weeks minimum
Critical point: you must set up an LPA while you have mental capacity. Once you’ve lost capacity, it’s too late. The only option then is the Court of Protection.
Protection for Estate Planning
Life insurance isn’t just about replacing income. Used strategically, it can pay the inheritance tax bill, fund gifts to the next generation, and ensure your family doesn’t have to sell the house to pay HMRC.
The IHT Problem (2026/27)
- Nil-rate band: 325,000 per person (frozen since 2009)
- Residence nil-rate band: 175,000 per person (if passing your home to direct descendants)
- Combined: up to 500,000 per person, or 1,000,000 for a married couple
- IHT rate: 40% on everything above the thresholds
- The residence nil-rate band tapers away for estates over 2 million (reduced by 1 for every 2 over the threshold)
With UK average house prices around 290,000 and property values in London and the South East much higher, more families are caught by IHT than ever before. Frozen thresholds plus rising asset values equals a growing tax take.
From April 2027: most unused pension funds and death benefits from pension plans will be subject to IHT. This is a major change that could significantly increase the number of estates paying IHT.
Life Insurance Solutions for IHT
Whole of Life Insurance (Written in Trust)
The most common IHT planning tool. A whole of life policy guarantees a payout whenever you die. Written in trust, the payout is outside your estate and delivered directly to beneficiaries without probate.
- Provides the cash to pay the IHT bill immediately, so your family doesn’t have to sell assets (especially the family home)
- The policy should be for at least the estimated IHT liability
- Premiums can be covered by the 3,000 annual gifting exemption (each person can gift 3,000 per year IHT-free), or gifts out of surplus income
Joint Life, Second Death Policy
Covers a married couple and pays out only when the second person dies. This is when the IHT bill actually arises (the first death is usually exempt due to the spousal exemption). Cheaper than two individual whole of life policies because the insurer only pays once.
Gift Inter Vivos Insurance
When you make a large gift (a Potentially Exempt Transfer), it takes 7 years for the gift to fall completely outside your estate. If you die within 7 years, some or all of the gift is brought back for IHT. Gift inter vivos insurance covers this 7-year risk.
- The cover decreases over the 7 years (reflecting the taper relief that reduces the IHT on the gift as time passes)
- Relatively cheap because the risk reduces each year
- Worth considering for any significant lifetime gift (property to children, large cash gifts, etc.)
Section 21 (Normal Expenditure out of Income)
If you can demonstrate that your life insurance premiums are paid from surplus income (money you don’t need for your normal standard of living), the premiums themselves may be exempt from IHT as “normal expenditure out of income.” This is a powerful but often overlooked exemption. It requires good record-keeping to demonstrate the pattern to HMRC.
The Bottom Line on Estate Planning
IHT is sometimes called a “voluntary tax” because, with proper planning, much of it can be reduced or avoided entirely. The tools are straightforward: wills, trusts, powers of attorney, gifting strategies, and life insurance.
The problem is that most people don’t plan. They assume the defaults will be fine, they put off the paperwork, and they leave their family to deal with the mess.
Don’t be that person. Get a will. Set up your LPAs. Consider trusts if your estate is substantial. Write your life insurance in trust. And review everything when circumstances change.
It’s not exciting work. But it’s the most important financial planning you’ll ever do for the people you love.