The recent death of the Duke of Westminster has seen campaigners calling for the Trust system to be reformed, after it was announced that the vast majority of his £9 billion estate will remain exempt from Inheritance Tax (IHT).
According to reports, the IHT bill on the estate should have totalled around £4 billion. However, the Grosvenor family (whose head was the Duke of Westminster) has made clever use of Trusts, enabling them to pass assets down through the generations without attracting vast death duties.
A Trust means that assets are legally owned by the family as Trustees, not individually. This means that they are not subject to tax when a family member dies. As one of the Trustees, the Duke could sell and buy assets within the Trust but he did not have absolute rights over them.
Trusts and similar structures are part of the legal framework because they have useful purposes, some of which are unrelated to tax planning.
The role of a discretionary trust is to protect family assets across the generations – most obviously by working as a kind of insurance policy against improvident behaviour by young or particularly reckless beneficiaries.
Trusts protect such beneficiaries from themselves, and also from creditors (or vengeful ex-spouses, for example). They offer flexibility and further protection if circumstances change, and can keep family assets outside of any divorce settlement.