In the Land of the Living Trust – Points to Note for Americans Relocating to the UK

As noted in a previous article on this website [Across the Pond: Why More Americans Are Choosing Britain in 2025], the increasing trend of US citizens moving to make their homes in the UK is attributable to a variety of factors, among them a new UK tax exemption regime which is favourable for arrivers in the medium-term, property and lifestyle considerations, changes to the law of immigration and citizenship, and the vicissitudes of American domestic politics. US citizens who have decided that the journey across the Atlantic is right for them will do well to ensure at the same time that their existing estate planning is seaworthy. With this, a review of their ‘living trusts’ will be required.

What are living trusts?

It is common for individuals in the US to establish what are known as ‘living trusts’ or revocable ‘grantor trusts’ in order to hold most or all of their assets. In the US, these arrangements are transparent for tax purposes during the settlor’s lifetime. The chief advantage of these trusts is that they allow the estate of the settlor (or, as they are known in the US, ‘grantor’ or ‘trustmaker’) to avoid the often costly and lengthy US probate process while the settlor retains control over their assets during their lifetime and directs how they will be dealt with when they lose capacity, or on their death, all in one fell swoop.

Settlors will sometimes appoint themselves sole trustee of their living trusts, as well as being the only person able to benefit from them in the first instance. Most often, living trusts are revocable, meaning that the settlor, during their lifetime, can undo the arrangement which they have put in place so that the assets are once again held by them personally.

Why are there no living trusts in the UK?

Although in the UK it is not unusual for an individual to settle trusts during their lifetime, the purpose of doing so is generally to pass the control or the benefit of assets to others, for tax or other reasons. They will usually retain any assets which they wish to continue to control and benefit from until death, as there is no administrative or tax advantage in parting with such assets. A grant of representation (usually a Grant of Probate) is almost always necessary for an individual’s personal representatives in the UK to access the assets held in their estate at death, but unlike many US states, the UK does not charge significant fees to obtain a Grant.

Why should US settlors/grantors think carefully about their living trusts when moving to the UK?

English law conceives differently of the fundamental nature of trusts to how many US states see them. This perspective is not merely academic; it can have a significant impact on how assets are taxed in the UK, which many US citizens moving to the UK may not anticipate.

In US living trusts, assets are sometimes held in such a way that the original owner of the assets essentially retains control over the assets they have settled onto a trust, or that the duties owed by the trustees to the beneficiaries are not fiduciary in nature (that is, they do not resemble those properly imposed in a trust relationship). In such cases the assets may, as a matter of English law, be regarded as being held in a ‘bare’ trust or nominee arrangement, or indeed possibly not on trust at all where the settlor, sole trustee, and principal beneficiary are all the same person.

As a consequence, such a trust will be treated transparently for UK tax purposes, as if its assets formed part of the estate of the principal beneficiary. This is all well and good, as it matches the US tax treatment of such trusts.

However, by contrast, the assets of substantive trusts are taxed in the trustees’ hands under the UK’s separate tax regimes for trusts.

Beneficiaries of US living trusts will want to understand how the assets in their trusts – typically the bulk of their assets – will be taxed in the UK, in order to avoid receiving an unwelcome surprise upon arrival in the UK.

How are living trusts treated in the UK?

Because there is no equivalent of living trusts in the UK, the treatment which a US living trust will receive as a matter of UK tax and trust law will depend on how exactly the document setting up the living trust is drafted.  In many cases, however, the trustees will be treated as the owners of the trust fund separately from the settlor personally, and this can result in a range of material UK tax exposures, including the risk of making the trust UK resident (and deemed disposals of the whole of the trust fund – with CGT charges arising – when the trustees cease to be UK resident).

Relevant considerations will include (but are not limited to):

• Whether or not the trust is revocable;
• Whether the settlor is also the principal beneficiary during their lifetime, and whether, in that period, the trustees have any power to dispose of assets otherwise than to the settlor;
• The identity and manner of appointment of the trustees (e.g. whether the settlor is also the sole trustee, and whether they can appoint and remove trustees);
• What powers remain in the settlor’s hands; and
• What obligations the trustees have towards the beneficiaries (especially those who are not the settlor), and whether the beneficiaries are able to enforce them.

It is recommended that settlors/beneficiaries of US living trusts take advice as to the likely treatment of these trusts before arriving in the UK, so that any required amendments can be made before they become UK resident. Depending on the likely treatment of the trust, they may wish to revise the manner in which their assets are held or make changes to the trusteeship. In some cases determined by the terms of the trust, the status of the trust may be liable to change depending on circumstances such as the settlor’s incapacity. It is advisable to consider these risks before it is too late to avoid them.