Trusts can be a powerful way to protect assets, provide for loved ones, and make sure your wishes are followed — but they are often misunderstood. This guide explains the main types of trust under Scots Law, when they can be useful, and what to watch out for
What Is a Trust?
A trust is a legal arrangement where one party (the trustees) holds and manages assets for the benefit of others (the beneficiaries), according to rules you set.
Trusts are created for many reasons, including:
- Protecting assets for children or vulnerable family members
- Reducing the risk of disputes after your death
- Helping manage tax or care planning
- Providing for a spouse while keeping assets in the family
Common Types of Trust in Scotland
Liferent Trusts
A liferent trust allows one person (the liferenter) to use or benefit from an asset, often a home, for life — while another person (the fiar) will inherit outright after the liferent ends. They can be especially useful in second marriages or blended families.
Discretionary Trusts
The trustees decide how and when to distribute assets to beneficiaries. This flexibility can help:
- Support beneficiaries at different times of life
- Protect funds from creditors or divorce settlements
- Adapt to changes in tax law
Example: Parents set up a discretionary trust for their children and grandchildren, allowing trustees to decide when and how much to pay out for things like education, housing, or emergencies.
Bare Trusts (Simple Trusts)
This is the simplest trust structure — the beneficiary has an immediate and absolute right to the asset. Often used to hold assets for children until they reach legal age.
Example: Grandparents leave money in a bare trust for a grandchild’s 18th birthday.
Asset Protection and Care Planning
Trusts can sometimes help protect assets from being fully counted in care fee assessments — but only in certain circumstances and never as a guaranteed avoidance tool.
Trusts and Inheritance Tax
Some trusts can help manage or reduce Inheritance Tax liability, but the rules are complex and depend on your circumstances.
Setting Up a Trust — Key Considerations
- Choose trustees you trust implicitly — they will control the assets
- Get the trust deed drafted professionally to ensure it works as intended
- Understand the tax position — some trusts have ongoing tax reporting duties
- Keep records and review the trust regularly
