Trust Structures for International Estate Planning

A trust is one of the oldest and most effective tools in estate planning — a legal arrangement with origins in English common law that enables assets to be held and managed for the benefit of named beneficiaries. For internationally mobile HNW individuals with assets, family members and tax obligations spanning multiple jurisdictions, a well-structured trust can provide inheritance tax efficiency, succession planning certainty, asset protection and flexibility across generations.

They are not, however, a simple solution. Trusts must be set up correctly, maintained properly and reviewed regularly as family circumstances and tax law change. This article explains the main types of trust, how they are used in international planning, and the UK tax treatment of offshore structures.

The three key parties

Every trust involves three parties:

• The settlor: The person who creates the trust and transfers assets into it. The settlor no longer owns the assets — though in certain structures (such as a "settlor-interested trust") the settlor may remain a potential beneficiary.
• The trustee: The person or institution who legally holds the assets and administers the trust according to its terms. Trustees have fiduciary duties to act in the beneficiaries' best interests.
• The beneficiaries: The individuals (or classes of individuals) for whose benefit the trust is held. Beneficiaries may have fixed entitlements or discretionary interests, depending on the trust type.

Trust types

Discretionary trust

In a discretionary trust, the trustees have full discretion over how and when income and capital are distributed among the beneficiary class. No beneficiary has a fixed entitlement. This flexibility is the trust's main advantage for estate planning: assets can be directed to the most appropriate beneficiaries (by tax status, need or circumstance) at the time of distribution.

For UK IHT purposes, a discretionary trust is subject to a "relevant property" regime:

• An initial chargeable transfer arises when assets enter the trust (though the settlor's nil-rate band may be used)
• A ten-year anniversary charge of up to 6% of the trust's value applies
• An exit charge (proportional) applies when assets leave the trust

Despite these charges, a discretionary trust can still be highly effective for IHT — particularly where the trust is settled outside the estate early enough for the initial transfer to fall within the NRB, and where the ten-year charges are modest relative to the IHT saved.

Bare trust

A bare trust holds assets for the absolute benefit of a named beneficiary, who has an immediate and unconditional right to both capital and income on reaching age 18. The beneficiary is treated as the direct owner for tax purposes. Bare trusts are simple and cost-effective, typically used to hold assets for children.

Interest in possession trust

A beneficiary has a right to the income arising from the trust but not necessarily to the capital. Interest in possession trusts can arise under a will (for example, a surviving spouse receives income for life, with capital passing to children on death). They are subject to their own IHT rules which are generally more favourable than the relevant property regime.

Offshore discretionary trust

An offshore trust is constituted under the law of a non-UK jurisdiction, with non-UK resident trustees. Common trust jurisdictions for UK-connected clients include Jersey, Guernsey, Isle of Man, Cayman Islands, BVI and Malta.

Offshore trusts and UK tax — the key rules

Excluded property trust

The most significant benefit of an offshore trust for UK purposes is the excluded property concept. Assets held in a non-UK situs trust established by a non-UK domiciled settlor are "excluded property" for UK IHT purposes — meaning they fall outside the UK IHT net entirely. This has historically been one of the primary planning tools for non-doms with UK exposure.

Following the April 2025 reforms, the excluded property treatment is preserved for individuals who are not long-term UK residents (fewer than 10 years of UK residence in the preceding 20 years) at the time the trust is settled. However, once an individual becomes a long-term resident, the excluded property status of the trust may be lost, and assets in the trust may fall back within the UK IHT estate.

Advice on the interaction between the 2025 reforms and existing or planned offshore trusts is essential.

Settlor-interested trusts and income tax

If the settlor (or their spouse) remains a potential beneficiary of an offshore trust — a "settlor-interested" arrangement — the UK income tax rules treat the trust's income as the settlor's own. This anti-avoidance provision has applied since 1936 and significantly limits the income tax advantage of offshore trusts for UK-resident settlors.

Transfer of assets abroad (ToAA) rules

UK anti-avoidance rules can attribute income of an overseas trust or company to a UK-resident "transferor" — the person who transferred assets to the overseas structure — if they can benefit from those assets. These rules are broad and can catch arrangements that were not designed to avoid UK tax. Specialist UK tax advice is essential before settling an offshore trust.

Practical uses for HNW international families

Succession planning across multiple jurisdictions. A single trust structure can hold assets in multiple countries, providing a single point of governance for a family's international estate. This avoids the need for probate in each jurisdiction separately — a major practical benefit for estates with assets in five or more countries.

Protection from forced heirship. Some countries (notably France, Spain, and various civil law jurisdictions) impose forced heirship rules that compel a minimum share of the estate to pass to certain family members. A properly structured trust may help to mitigate this, though the interaction with each country's rules is complex.

Asset protection. A trust that was constituted before a claim arose (and not as a transaction at undervalue) may provide protection from future creditor claims. This is particularly relevant for business owners and professionals with litigation risk.

Controlling distributions. Where a beneficiary is a minor, has a mental or physical disability, has addiction issues, or is in an unstable relationship, a discretionary trust allows trustees to control the timing and conditions of distributions — protecting the asset for the beneficiary's long-term benefit.

Setting up a trust — practical considerations

• Jurisdiction choice affects the trust law, regulatory framework, trustee availability and cost. Jersey and Guernsey are among the most respected common-law trust jurisdictions.
• Professional trustee vs individual trustee: A regulated professional trustee brings expertise, independence and accountability. Individual trustees (family members) bring familiarity but add administrative burden and can create conflict.
• Letter of wishes: A non-binding letter from the settlor to the trustees explaining the settlor's intentions is standard practice in discretionary trusts. The letter should be updated as circumstances change.
• Cost: Offshore trusts involve establishment costs (legal fees for drafting), annual trustee fees and accounting costs. These are material and should be weighed against the planning benefit.

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How Global Investments can help

We co-ordinate international estate planning across tax, legal and financial disciplines. Our team works with specialist trust lawyers in key jurisdictions to design and implement estate planning structures appropriate to your family's situation.

Contact us to discuss your estate planning needs.

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This article is for general information only and does not constitute legal or tax advice. Trust law, UK tax rules and the rules of other jurisdictions change. Always obtain specialist legal and tax advice before establishing a trust or making any estate planning decisions.