The Benefits and Pitfalls of Trusts: A Guide for British Expats
For British expats, protecting family wealth and planning for the future can feel more complicated than it does for those who remain in the UK. Living abroad often means navigating different legal systems, inheritance rules, and tax frameworks, all of which can affect how your estate is managed and passed on.
Against this backdrop, trusts are often seen as a flexible solution. They may help with succession planning, provide opportunities for tax efficiency, and give families greater control over how assets are used across generations. However, trusts are not without their challenges. Tax treatment varies widely between countries, rules are becoming stricter, and the UK itself has changed its approach. This article explores the potential benefits of trusts, and the key pitfalls to be aware of.
What is a Trust?
A trust is a legal structure that separates the ownership of assets from their ultimate use. In simple terms, a settlor places assets into the trust, trustees manage them according to the trust deed, and beneficiaries receive the benefits.
Trusts are commonly used in the UK for inheritance planning, protecting family wealth, and ensuring assets are passed on efficiently to future generations. They can provide an extra layer of control and continuity compared to a standard will.
For British expats, trusts can be powerful, but also complex. Their effectiveness depends not only on UK law but also on the rules of your country of residence and where your assets are located. Some jurisdictions treat trusts favourably, while others impose heavy reporting requirements or taxes.
There are also different types of trusts. The two most common are discretionary and fixed. In a discretionary trust, trustees decide how and when to distribute assets among beneficiaries. In a fixed trust, distributions follow specific instructions, such as allocating a set share to each beneficiary. For expats, discretionary trusts are often preferred because they give trustees greater flexibility to adapt to changing legal systems and family circumstances across borders.
Benefits of Trusts for British Expats
Trusts can provide a range of advantages for expats, from succession planning to asset protection and potential tax efficiency. The benefits are not just theoretical, in some countries, local inheritance laws can restrict how wealth is passed on, while in others, trusts can create flexibility and continuity across borders. Below, we highlight key benefits, with examples of how trusts interact with different legal systems worldwide.
Estate Planning and Succession Control
One of the biggest advantages of a trust is the ability to determine exactly how your wealth is managed and distributed, both during your lifetime and after your death. Unlike a standard will, which only takes effect once probate is complete, a trust can provide continuity and control across generations.
For British expats, this control can be especially valuable. Families are often spread across multiple countries, each with its own inheritance rules. For example, some European countries have forced heirship laws that require assets to be divided in a particular way, regardless of your personal wishes. A well-structured trust can help you navigate these restrictions and ensure your wealth is passed on in line with your intentions.
Trusts can also protect younger or vulnerable beneficiaries by releasing funds gradually or with conditions attached, rather than providing a lump sum all at once. This gives you peace of mind that your wealth will be used responsibly and in the best interests of your family.
Potential Tax Efficiency
Depending on your residency and where your assets and trust are based, trusts may help manage exposure to inheritance tax (IHT) and other local taxes.
Under the UK’s inheritance tax rules (effective April 2025), the concept of “domicile” has been replaced by a long-term UK residence. Individuals will fall within the scope of UK IHT if they have been UK resident for at least 10 of the previous 20 tax years.
This shift could have a significant impact on expats who retain close ties to the UK. A carefully structured trust may still provide opportunities to manage inheritance exposure, but the rules are complex and require expert advice.
Asset Protection
Trusts can play a vital role in shielding family wealth from external risks. They can help ring-fence assets from potential claims in divorce settlements, business liabilities, or creditors, ensuring that wealth is preserved for future generations.
They also provide a safeguard for vulnerable beneficiaries who may not be ready, willing, or able to manage money responsibly. Trustees can control how and when funds are released, offering long-term financial stability and protection against mismanagement.
For expats, the protective power of trusts goes a step further. Many internationally mobile expats own property or investments in multiple countries, each with its own legal and succession rules. In some countries, forced heirship laws dictate how assets must be divided among family members, which may conflict with your personal wishes.
- Italy: Forced Heirship with Trust Recognition
Italian succession law requires that a portion of your estate is reserved for children and/or a spouse. However, because Italy recognises trusts under the Hague Trust Convention, expats may still be able to use them to structure wealth more flexibly, ensuring that family assets are managed in line with broader intentions.
- Portugal: Balancing Heirship and Flexibility
Portugal also applies forced heirship rules, which limit how much of your estate can be freely allocated. That said, trusts can still be effective tools for British expats with international assets, helping to navigate local restrictions while preserving greater choice over how wealth is passed on.
Flexibility Across Generations
Trusts are designed to evolve with family circumstances. Trustees can adjust distributions to reflect life events such as marriage, divorce, the birth of children, or relocation to a new country. Unlike a simple will, a trust offers an ongoing framework that adapts as your family’s needs change.
For expats, this flexibility is even more valuable. Families often span different countries, with children studying abroad, adult children settling permanently overseas, or parents retiring in yet another jurisdiction. A trust can help ensure that financial support is delivered in the right way for each beneficiary, regardless of where they live. For example, trustees might provide regular income to a child in one country while helping another buy a home in a different jurisdiction, all within the same structure.
This adaptability allows trusts to support multiple generations in a way that reflects both cultural differences and practical realities. It is one of the few estate planning tools that can truly function across borders.
Pitfalls of Trusts for British Expats
While trusts can be powerful tools, they are not without drawbacks. Cross-border taxation, changing laws, and high compliance costs mean that what works in one jurisdiction can create problems in another. Some countries treat trusts harshly, with additional reporting and punitive tax rules, while others barely recognise them at all. Below, we outline some of the key pitfalls, with examples of where expats often run into difficulties.
Tax Complications Across Borders
Trusts may reduce taxes in one country, but they can create new liabilities elsewhere. Rules differ widely, and expats often find themselves caught between overlapping regimes.
- France: Strict Reporting and Punitive Taxes
France requires annual declarations for trusts where a French tax resident is involved, whether as settlor, trustee, or beneficiary. Failure to comply can result in significant penalties, and in some cases, assets held in trust may be taxed at rates of up to 60%. This makes France one of the more challenging jurisdictions for expats who rely on trusts.
- Spain: Limited Recognition of Trusts
Spain generally does not recognise trusts under its civil law system. Instead, assets in a trust are often treated as if they still belong to the settlor, meaning the intended separation between ownership and benefit is ignored. This can result in unexpected income or wealth tax liabilities for expats with Spanish connections.
Complexity and Costs
Professional trustees typically charge ongoing fees, and additional costs arise from mandatory reporting under global regimes such as FATCA and the Common Reporting Standard (CRS). Each time an expat relocates, the trust structure may need to be reviewed for compliance with local law, creating further legal and advisory expenses. For some families, these costs can erode the intended efficiency of the trust, making it essential to weigh the benefits against the long-term financial burden.
Changing Laws Abroad
Trust laws are evolving worldwide, with a clear trend toward stricter transparency and reporting. Some countries, such as Spain, treat trusts as if the settlor still owns the assets. Others, like Australia, may tax trust income at punitive rates if beneficiaries live abroad. Expats who relocate multiple times face challenges, since a trust that works well in Switzerland may cause unexpected liabilities if the family later moves to Dubai or Singapore.
Alternatives and Complementary Options
Trusts are only one of several estate planning tools available to expats. In some situations, other solutions may be more effective. Family investment companies or joint ownership arrangements can provide similar control without the same level of complexity.
The best approach usually involves combining strategies to create a resilient, portable plan that works wherever life takes you. Professional advice is essential to assess which options suit your circumstances and to ensure they fit together effectively. For example, multi-jurisdictional wills can reduce probate delays, life insurance can provide liquidity for cross-border tax bills, and pensions may offer a tax-efficient long-term wealth transfer option.
Making the Complex Simple for Expats Worldwide
Trusts can be powerful tools for British expats, offering estate planning, asset protection, and potential tax advantages. However, they also bring complexity, costs, and cross-border tax risks.
The right solution depends on your residency, family needs, and long-term goals. Before establishing a trust, it’s essential to seek advice from a cross-border specialist who understands both UK and international rules.
At Forth Capital, we help high-net-worth, internationally mobile executives structure and protect their wealth before, during, and after a move abroad. From tax optimisation to asset management and estate planning, we deliver clear, personalised strategies that avoid costly mistakes.
Contact us today to arrange an initial consultation.
Mark Routen
Chartered Tax Advisor
As Forth Capital's Head of Tax, I offer tailored tax planning advice to high-net-worth international private clients. I help them understand their options, optimise their cross-border arrangements, and create a robust plan for their future.
Frequently Asked Questions
They may, but effectiveness depends on your residency and the structure of the trust.
Yes. In some civil law countries, such as Italy and Portugal, forced heirship rules require part of your estate to go to children or a spouse. Because these countries also recognise trusts under international conventions, expats may still be able to use them to preserve flexibility.
Careful planning is required. Double taxation treaties may help, but not all countries treat trusts the same way. Specialist advice from a cross-border advisor is critical.
Not necessarily. Trusts can be valuable for succession and estate planning, but they are not always the most efficient solution. Your residency, family situation, and long-term plans should all be considered and advice sought from a cross-border advisor.
This article is provided for information only and does not constitute financial, legal, or tax advice. Content is based on current UK legislation and may change in the future. All planning arrangements should be regularly reviewed in consideration of legislative updates. Tax and pension rules differ across jurisdictions. References to UK or international tax frameworks are general in nature and not tailored to individual circumstances. Any examples are illustrative only; actual outcomes will depend on personal circumstances and local law. Past performance should not be relied upon as an indicator of future results. Investments can go down as well as up, and you may not recover the amount originally invested.The use of trusts may involve legal, trustee, and reporting costs which could reduce the overall benefit.
Last updated 2 September 2025
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