Trust Formation under English and Welsh law

A trust is a legal relationship under which assets are transferred to, or held by, trustees for the benefit of one or more beneficiaries or for a legally recognised purpose. The trustees become the legal owners of the trust assets but must manage them in accordance with the trust deed, applicable law and their duties to the beneficiaries. 

Trusts can support business succession, investment and asset-holding arrangements, employee incentives, estate planning, charitable purposes and commercial transactions. Their legal and tax consequences depend on their terms, the assets involved and the circumstances of the settlor, trustees and beneficiaries. 

Our London office assists individuals, families, companies, investors, directors and other commercial parties with establishing and administering trusts under the law of England and Wales. 

Common types of trust 

The appropriate structure depends on the objectives of the arrangement. Trusts with commercial or private-client relevance include: 

• Bare trusts and nominee arrangements, under which the beneficiary is generally absolutely entitled to the relevant assets and the trustee or nominee holds legal title on the beneficiary’s behalf; 

• Discretionary trusts, which give trustees discretion over distributions of income or capital among a specified class of beneficiaries; 

• Interest in possession trusts, under which a beneficiary has a present right to trust income, while the capital may ultimately pass to other beneficiaries; 

• Trusts containing accumulation provisions, under which trustees may or must retain income and add it to the trust capital; 

• Mixed trusts, combining different forms of entitlement within a single arrangement; 

• Will trusts, which arise under a Will and may provide for spouses, children, vulnerable persons or future generations; 

• Employee benefit and employee ownership trusts, used in connection with employee incentives, benefits or succession to employee ownership; 

• Pension trusts, through which pension-scheme assets may be held and administered; 

• Charitable trusts, established exclusively for recognised charitable purposes; 

• Security trusts, under which security may be held by a trustee for multiple lenders or other finance parties; and 

• Investment and property-holding trusts, which may be used to hold particular assets or facilitate investment arrangements, subject to applicable tax, financial-services and regulatory requirements. 

Some descriptions overlap, and a single trust may fall into more than one category. Each type may also receive different tax treatment. 

The formation process 

Creating a trust usually involves: 

• Identifying the intended purpose and assessing whether a trust is an appropriate structure; 

• Selecting the settlor, trustees and beneficiaries, or defining the relevant class of beneficiaries; 

• Determining the trust assets and how they will be transferred to or acquired by the trustees; 

• Selecting the appropriate trust structure and considering its legal, tax and regulatory consequences; 

• Drafting and executing the trust deed and other constitutive documentation, including the trustees’ powers, duties and decision-making procedures; 

• Transferring or declaring the trust over the relevant assets, perfecting the trustees’ legal title where required, and completing any necessary registrations; and 

• Establishing governance, record-keeping and compliance procedures for the continuing administration of the trust. 

Many UK express trusts, and certain non-UK trusts with connections to the UK, must be registered with HM Revenue & Customs through the Trust Registration Service unless a specific exclusion applies.Charitable trusts may also be subject to registration and ongoing regulatory requirements administered by the Charity Commission for England and Wales. Trustees may also have ongoing tax, record-keeping, reporting and beneficial-ownership obligations. 

How we can assist 

We can advise on whether a trust is suitable for the client’s objectives, identify an appropriate structure and prepare a tailored trust deed. We can also advise settlors, trustees and beneficiaries on their respective rights, duties and potential liabilities. 

For commercial arrangements, we can coordinate the trust deed with shareholders’ agreements, financing documents, security arrangements, employment incentives and corporate-governance documentation. Where specialist tax, pensions, investment-regulatory, valuation or foreign-law issues arise, we can coordinate with the client’s accountants, tax advisers and other professional advisers. 

Our multilingual team provides assistance in English, Hungarian, German, Spanish, Russian and Turkish. We are therefore well placed to support internationally connected families, investors and businesses, including arrangements involving trustees, beneficiaries or assets in several jurisdictions. 

Early legal advice can help ensure that the trust is validly constituted, appropriately documented and administered in accordance with its intended purpose.