Mis-sold trusts: what you need to know

Trusts are often used in estate planning to protect assets, reduce inheritance tax and ensure wealth is passed on according to your wishes. But in recent years, mis-sold trusts have become a growing issue. People are sometimes advised to set up trusts that are unnecessary, unsuitable or poorly explained, leading to financial losses and added complications.

If you’ve been advised to set up a trust, it’s important to understand the risks of mis-selling and what to do if things go wrong.

What is a mis-sold trust?

A mis-sold trust occurs when someone is sold a trust under misleading or inappropriate circumstances. This may involve:

• Selling trusts to people who don’t need them: some individuals are promised tax savings or asset protection when these benefits don’t apply to their financial situation
• Inadequate advice or hidden costs: some trusts are sold without clear explanations of long-term costs or complexities involved. Clients may be unaware of trustee fees, maintenance charges and tax implications
• Incorrect trust structure: a poorly structured trust may fail to achieve its intended goals, such as reducing inheritance tax or protecting assets, potentially leading to unintended financial consequences.

Why are trusts mis-sold?

Several factors contribute to the mis-selling of trusts:

• Lack of proper regulation: some advisers may not be adequately regulated or trained to give the correct advice about trusts
• Conflict of interest: advisers may be incentivised to sell trusts in exchange for commission or fees, leading to biased recommendations that don’t align with the client’s best interests
• Complexity of trusts: trusts are complex legal instruments and not all advisers explain their implications, costs or limitations clearly.

Signs you may have been mis-sold a trust

Watch out for these red flags:

• Promises of unrealistic tax savings: if you were promised large tax reductions or asset protection without understanding the details of how the trust works, be cautious
• Lack of clear information about costs: if the fees associated with managing the trust weren’t clearly disclosed, or you were told the trust was ‘low-cost’ but charges are high, this is an issue
• The trust doesn’t meet your needs: if you don’t have a large estate or need asset protection, a trust may not be necessary. If one was sold to you without clear justification, you could have been mis-sold.

What to do if you’ve been mis-sold a trust

If you think you’ve been mis-sold a trust, consider these steps:

• Seek legal advice: a lawyer can review your trust to help determine whether it was the right choice for you and advise on resolving the issue
• Review the trust’s costs and structure: look at the fees and terms associated with your trust. If these weren’t properly explained, you may have a case for mis-selling
• File a complaint: if the trust was sold by a financial adviser or solicitor, you can file a complaint with the relevant regulator (such as the Financial Conduct Authority in the UK)
• Request compensation: you may be entitled to compensation if you’ve suffered financial loss because of the mis-sell.

Conclusion

Trusts can be a valuable part of estate planning, but they’re not for everyone. Mis-sold trusts can lead to unnecessary costs, complications and tax consequences. If you suspect you’ve been mis-sold a trust, seek professional legal advice to make sure your estate plan works for you, not against you.