What are the Advantages and Disadvantages of a Trust?

Trusts are powerful tools for managing, protecting, and transferring wealth. Used by individuals, families, and institutions worldwide, they offer flexibility for estate planning, tax structuring, and asset control.

But they’re not without drawbacks. Trusts can be complex, costly to maintain, and, if poorly designed, may create legal or tax complications across jurisdictions.

If you are looking to invest as an expat or high-net-worth individual, you can email me (hello@adamfayed.com) or WhatsApp (+44-7393-450-837).

This includes if you are looking for a free expat portfolio review service to optimize your investments and identify growth prospects.

Some facts might change from the time of writing. Nothing written here is financial, legal, tax, or any kind of individual advice, nor is it a solicitation to invest or a recommendation of any specific product or service.

Despite their flexibility and usefulness, trusts are not a one-size-fits-all solution. They require careful planning, ongoing management, and a thorough understanding of the legal and tax consequences in all relevant jurisdictions.

This article will discuss the advantages and disadvantages of a trust, helping investors, expats, and globally mobile individuals understand when and how a trust might support their long-term financial and estate planning goals.

What is a trust? What is the purpose of a trust?

A trust is a legal arrangement in which one party, the settlor, transfers ownership of assets to another, the trustee, to manage on behalf of one or more beneficiaries.

The trustee is obligated to administer the trust in accordance with the terms set out in a legal document (the trust deed) and in the best interests of the beneficiaries.

Both domestic and offshore trusts are employed to address a wide range of planning needs, from avoiding probate and reducing estate taxes to protecting assets from creditors or managing family wealth across generations and jurisdictions.

What are the advantages of a trust?

Efficient estate planning

One of the most common reasons individuals establish a trust is to ensure a smooth and private transfer of assets upon death.

Assets held in trust do not go through probate, which can be a lengthy and public legal process.

This is particularly valuable in jurisdictions where probate is slow, costly, or subject to public scrutiny. A trust allows for faster distribution, reduces the risk of family disputes, and provides continuity of asset management in the event of incapacity or death.

Asset protection

When properly structured, a trust can shield assets from creditors, lawsuits, or divorce settlements.

In irrevocable trusts, assets no longer belong to the settlor and may be legally beyond the reach of future claims.

This makes trusts an effective tool for business owners, professionals in high-risk industries, or families seeking to safeguard intergenerational wealth from external threats.

Jurisdictions such as the Cook Islands, Jersey, and the Cayman Islands offer strong legal frameworks that support asset protection.

Tax planning opportunities

Trusts can be structured to reduce tax exposure, particularly inheritance tax and capital gains tax, depending on the jurisdiction.

In some cases, a trust can allow for income to be split among beneficiaries in lower tax brackets, reducing the overall family tax burden.

Offshore trusts, when compliant with relevant anti-avoidance rules, may allow for tax deferral or asset growth in tax-neutral environments.

That said, the effectiveness of these strategies depends heavily on where the settlor, beneficiaries, and trust are domiciled or tax-resident.

Confidentiality and privacy

Unlike wills, which often become public during probate, trusts are private agreements and are generally not subject to public disclosure.

This appeals to individuals who prefer to keep their estate plans confidential or who live in jurisdictions with high public exposure.

While international reporting standards such as CRS and FATCA have reduced financial secrecy, trusts still provide more discretion than onshore asset holding in many cases.

Control over distribution

Trusts allow settlors to establish detailed instructions for how assets are to be managed and distributed.

This can include conditions based on age, education, health, or milestones such as releasing funds for a beneficiary’s university tuition but not for discretionary spending. This control ensures that wealth is used responsibly and in line with family values or long-term intentions.

Support for vulnerable beneficiaries

Trusts can provide structured, long-term financial support for minors, individuals with disabilities, or financially inexperienced family members.

Trustees can manage funds professionally and ensure that distributions are made in the beneficiary’s best interest, which is especially important when the beneficiaries are unable to manage the assets themselves.

Cross-border portability

For expats or internationally mobile families, trusts offer a structure that remains intact regardless of relocation.

Assets from multiple jurisdictions can be consolidated within a single trust, simplifying management and succession.

Offshore trusts, in particular, are designed for legal portability, making them ideal for global families with complex residency or citizenship situations.

Continuity of wealth management

Because trusts can outlive their settlors, they serve as a long-term structure for preserving and growing wealth across generations.

Professional trustees can ensure that assets are managed prudently, that beneficiary needs are assessed objectively, and that the settlor’s intentions are upheld over time even in changing legal or family circumstances.

What are the disadvantages of a trust?

Loss of direct control

One of the primary trade-offs of using a trust, particularly an irrevocable one, is the loss of legal ownership and control over the assets.

Once transferred, the settlor must rely on the trustee to act in accordance with the trust deed and fiduciary duty.

While letters of wishes can provide informal guidance, they are not legally binding. If the settlor retains too much control, the trust may be challenged as a sham or may trigger adverse tax consequences, especially in jurisdictions like the UK, US, or Canada.

Cost and administrative complexity

Establishing and maintaining a trust involves both initial and ongoing expenses. Legal fees, trustee fees, annual maintenance charges, and tax advisory services are common, especially for complex or cross-border trusts.

Offshore trusts may also incur additional costs for compliance, currency management, and independent audits. These costs can erode returns, making trusts impractical for smaller estates or for those who do not need long-term structuring.

Tax complications in certain jurisdictions

Trusts are treated very differently across tax systems. In some countries, they are viewed favorably and offer clear planning advantages.

In others, such as Australia, France, and Canada, they are subject to look-through rules, punitive taxation, or complex reporting.

Some jurisdictions tax trust income at high flat rates or deny deductions that would be available to individuals. Without careful planning, a trust intended for tax deferral may result in higher liabilities or legal scrutiny.

Increased reporting and regulatory obligations

Modern transparency initiatives have significantly changed the landscape for trusts. Under frameworks such as the OECD’s Common Reporting Standard (CRS), FATCA (for U.S. persons), and EU DAC6, many trusts are now reportable financial entities.

This includes disclosing the identity of the settlor, trustees, and beneficiaries to tax authorities. Some countries have public or semi-public trust registers, especially within the EU, which can reduce the privacy benefits traditionally associated with trust structures.

Potential for conflict or mismanagement

The effectiveness of a trust depends heavily on the integrity, competence, and responsiveness of the trustee.

If trustees mismanage the trust or fail to act impartially, disputes may arise, either between trustees and beneficiaries or among beneficiaries themselves.

In some cases, court intervention may be required to resolve disagreements or remove a trustee. This is especially relevant in discretionary trusts, where distribution decisions are not fixed and may be seen as unfair.

Restricted access to funds

Beneficiaries do not have automatic rights to demand distributions unless the trust deed explicitly provides for it.

Trustees must act within the terms of the trust and are not obligated to respond to informal requests.

This can be frustrating for beneficiaries in need of liquidity, or for settlors who regret the loss of control. In irrevocable trusts, even the settlor cannot revoke the arrangement or reclaim the assets.

Changing legal and tax landscapes

Trusts are increasingly subject to legal reforms, particularly in areas related to international taxation, transparency, and anti-money laundering.

Governments may impose new reporting duties, alter tax treatment, or restrict the use of offshore structures.

A trust that is tax-neutral or private today may become exposed tomorrow due to new legislation or blacklisting of jurisdictions. As a result, trusts require active oversight and periodic review to remain compliant and effective.

Who should use a trust?

Trusts are not appropriate for every individual or family. However, they are especially well-suited to certain profiles and planning goals:

• High-net-worth individuals (HNWIs)
  Families with substantial assets often use trusts to preserve and manage wealth across generations. Trusts offer a way to centralize control, define distribution rules, and protect against estate fragmentation or inheritance disputes.
• Globally mobile individuals and expats
  Those living in multiple countries or holding assets in various jurisdictions benefit from the legal continuity and portability of trusts. Trusts reduce the need for separate probate procedures, simplify succession planning, and mitigate multi-jurisdictional tax risks.
• Business owners and professionals in high-risk industries
  Trusts can protect personal assets from business-related liabilities, litigation, or professional claims. When set up in advance and for legitimate purposes, they can serve as a legal firewall in the event of unforeseen legal challenges.
• Individuals concerned with privacy or political risk
  Trusts offer confidentiality for families in sensitive political, business, or media environments. They also provide asset protection against expropriation or instability in countries with weak legal protections or volatile governance.
• Families with complex succession needs
  Second marriages, blended families, and non-traditional family structures often require flexible solutions that go beyond what a will or joint ownership can provide. Trusts allow settlors to balance the needs of multiple beneficiaries over time and under defined conditions.

In all cases, a trust should be established based on clear objectives, supported by professional legal and tax advice, and structured in a jurisdiction appropriate to the family’s needs and footprint.

Pained by financial indecision?

Adam is an internationally recognised author on financial matters with over 830million answer views on Quora, a widely sold book on Amazon, and a contributor on Forbes.