Trusts Explained: A Simple Guide for Scottish Families

Trusts are a common and useful part of estate planning in Scotland, yet many families find them confusing. Put simply, a trust is a legal arrangement that allows one person or group (the trustees) to look after money, property or other assets for someone else (the beneficiaries). This guide explains how trusts work, the types you might come across, and why Scottish families use them.

What Is a Trust?

A trust is created when a settlor transfers assets to trustees, who are responsible for managing those assets for the benefit of beneficiaries. The rules of the trust are usually set out in a legal document called a trust deed, or in a will if the trust is created on death.

A trust acts like a protective wrapper around assets, offering control and flexibility that normal inheritance arrangements cannot always provide.

Why Scottish Families Use Trusts

Families often use trusts to:

Protect young beneficiaries
A trust allows assets to be held until a sensible age, rather than passing automatically at 16, which is the default under Scots law.
Support vulnerable relatives
If someone struggles with finances or has a disability, a trust ensures the funds are managed responsibly and without affecting benefits.
Plan for blended families
Trusts can balance competing interests — for example, allowing a spouse to live in the family home while protecting children’s inheritance.
Manage property or business interests
Trusts can hold a family home, second property or business share to ensure smooth succession across generations.
Reduce the risk of family disputes
Trusts set out clear rules on who controls and who benefits from the assets.

Common Types of Trusts in Scotland

Trusts in Scotland fall into several categories. Understanding the differences helps families choose what best suits their circumstances. Below is an expanded explanation of the most common types, with practical examples of how they are used.

Discretionary Trusts: A discretionary trust gives trustees full discretion over:

which beneficiaries receive funds,
when they receive them, and
how much they receive.

Why families use them:

They offer maximum flexibility, which is ideal where circumstances may change.
They protect beneficiaries who are not yet financially mature.
They can provide long-term control, particularly for larger family estates or where multiple generations may benefit.

Example:

“Grandparents set up a discretionary trust for all their grandchildren. The trustees can help with education costs or first-time property purchases, but no child automatically receives a lump sum at age 16 or 18.”

Liferent Trusts: A liferent trust separates the right to use an asset from the right to inherit it.

The liferenter (often a spouse or partner) can live in a property or receive income from assets during their lifetime.
After their death, the asset passes to the fiar (usually children).

Why families use them:

They are popular in second marriages.
They protect the family home for children while still providing security for a surviving spouse or partner.
They prevent the property being sold or diverted away from the intended heirs.

Example:

“A man leaves his wife a liferent of the house so she can live there for life, but the property ultimately goes to his children from his first marriage.”

Bare Trusts (Simple or Absolute Trusts): A bare trust is the simplest form of trust. The beneficiary has an absolute and immediate right to both the capital and income, even if the trustees hold it until the beneficiary becomes an adult.

Why families use them:

They are straightforward and low-admin.
They are commonly used for savings or investments for children.
The beneficiary controls the assets entirely once they reach adulthood.

Important point:

In Scotland, legal capacity to access a bare trust is usually at 16, which may be too young for some families — this is why many prefer a discretionary trust.

Interest in Possession Trusts: This type gives a beneficiary the right to receive income from the trust, but not the capital. It is similar to a liferent trust but can be used for other types of assets such as shares or investments.

Why families use them:

To provide regular income to a beneficiary (for example, an elderly parent).
To preserve the capital for the next generation.
To maintain control over when and how the capital is eventually passed on.

Disabled Person’s Trusts: A special type of discretionary trust designed to support someone with a disability.

Key features:

The trust is structured so the beneficiary is not treated as owning the assets personally.
This helps protect means-tested benefits.
Trustees have flexibility to use the funds in the person’s best interests over their lifetime.

Why families use them:

They ensure long-term, responsible financial support without compromising benefits or care packages.

Will Trusts (Testamentary Trusts): These trusts are created through a will and only come into effect on the death of the person who made the will.

Common forms include:

Trusts for children — allowing funds to be released at a chosen age.
Liferent trusts for spouses — for blended families.
Discretionary trusts — often used to protect assets until executry matters are resolved.

Why families use them:

They offer control beyond death.
They help ensure children’s inheritance is protected if the surviving spouse remarries.
They allow trustees to react to whatever circumstances exist at the time of death.

Charitable Trusts: These are trusts set up exclusively for charitable purposes and must meet strict legal tests under the Office of the Scottish Charity Regulator (OSCR).

Why families use them:

To create a lasting charitable legacy.
To support causes important to the family.
To benefit from certain tax reliefs associated with charitable giving.

Family Investment Trusts (or Family Trusts): While not a separate legal category, many Scottish families create trusts specifically to hold investments or property long-term.

Why families use them:

To manage family wealth collectively.
To reduce the risk that young beneficiaries spend large inheritances too early.
To support family-wide goals such as education, housing or business investment.

How Trusts Work: The Key Roles

Settlor — creates and funds the trust.
Trustees — manage the trust responsibly and follow the trust deed.
Beneficiaries — the people the trust is designed to benefit.

Trustees must act with care, keep proper records, and make decisions in the best interests of beneficiaries.

Examples of Trusts in Real Scottish Families

Providing for children
“A couple put life insurance proceeds into a trust so their children wouldn’t inherit everything at 16. The trustees can use the money for education, and the children receive it gradually from age 21.”

Supporting a vulnerable adult
“A father set up a discretionary trust for his son, who struggles to manage money, ensuring financial security without risking loss of benefits.”

Blended family planning
“A liferent trust ensured a surviving spouse could stay in the home for life, while the property ultimately passed to the children.”

Trusts and Scottish Succession Law (Including Legal Rights)

Legal rights can affect how trusts operate:

Assets placed into a trust during lifetime may fall outside the estate
But only if the transfer was genuine and not designed to defeat legal rights.
Trusts created in a will do not avoid legal rights claims
Children or spouses may claim their share before the trust is funded.
Trusts need careful planning to avoid disputes
Professional advice ensures the trust works with Scottish law rather than against it.

Tax Considerations

Different trusts have different tax rules. Families must consider:

Inheritance Tax — some trusts face periodic charges.
Income Tax — tax may be payable on trust income.
Capital Gains Tax — selling trust assets can trigger gains.

The right trust can balance asset protection with tax efficiency, but advice is essential.

Is a Trust Right for Your Family?

A trust may be worth considering if you want to:

protect children’s inheritance,
support a vulnerable relative,
plan for a blended family,
protect property or investments, or
maintain family harmony by laying out clear rules.

Trusts, Property and Care Home Fees: An Important Warning

In recent years, many people have been encouraged to place their home into a so-called “Family Protection Trust” or “Asset Protection Trust”, often with the suggestion that this will prevent the property being taken into account for care home fees. This is a common area of misunderstanding and, in some cases, mis-selling.

When the home is the main or only asset

For many individuals and couples, the family home is their main asset. Placing the property into trust during lifetime does not automatically protect it from care costs.

Deprivation of assets in Scotland

If a local authority believes that assets were transferred into trust deliberately to avoid paying for care, this may be treated as a deprivation of assets. There is no fixed time limit that makes a transfer safe. The local authority will consider factors such as age, health, foreseeability of care needs, and the intention behind the transfer.

If deprivation is found, the individual can be assessed as though they still own the property, even if it is legally held in trust.

Why “Family Protection Trusts” can be misleading

No trust can guarantee that a property will be excluded from a care fees assessment. Claims that a trust will automatically protect the home should be treated with caution. In many cases, the property may still need to be sold or its value taken into account.

Final Thoughts

Trusts remain valuable tools for estate planning, particularly for blended families, protecting children’s inheritance, supporting vulnerable beneficiaries, and planning through a will. They should not, however, be used primarily to avoid care home fees where the property is the main asset.

If you think you may benefit from setting up a Trust and you are looking for an experienced solicitor, then please contact our experienced Private Client Team on 01324 622 888 or contact help@randa-fa.co.uk and we would be delighted to assist.