Registered number: 10816512.
Registered office: Squiggle Consult Ltd, Suite 2069, Letraset Building, Wotton Road, Ashford, Kent, TN23 6LN
Squiggle Consult Ltd. is a limited company registered in England and Wales.
The estate is nearly sorted and your inheritance is sitting in a trust. You need some of it now, perhaps for a deposit, a new roof or to clear the mortgage, and the trustees are happy to help. What nobody mentioned is that there are two ways for the money to reach you, and they lead to very different places if life goes wrong later.
The trustees can give you the money outright, or they can lend it to you. The amount that lands in your bank account is the same. What changes is who the law says it belongs to afterwards. Many Wills, including most of the ones we write at Squiggle, are set up so that trustees can lend as well as give. This guide explains why, what a loan does and does not protect, when taking the money outright is the better choice, and what to do when a conveyancer or mortgage lender gets involved.
Most of this guide is written for trusts created by a Will after someone has died. Trusts set up during someone's lifetime work in much the same way, with one exception that is covered near the end.
Outright. The trustees record their decision, often in a deed of appointment (a signed document giving trust assets to a beneficiary), and pay the money to you. It is yours. You can spend it, save it or give it away, and nobody can ask for it back. It is also yours when a divorce court, a creditor, a council assessing care fees or HMRC comes to add up what you own.
As a loan. The trustees pay you the same money, and you sign an agreement promising to pay it back when they ask. In most family trusts no interest is charged and nobody expects monthly repayments. You have the use of the money, but you owe it to the trust, and that debt is an asset the trustees still hold for the family.
There is a third choice that is easy to forget: leave the money where it is until you need it. Money still inside the trust has the strongest protection of all. You can also mix them, taking some outright, borrowing some and leaving the rest alone.
A loan is stronger in some situations than in others, so here is each one in turn.
Who inherits from you. When you die, your executors (the people who deal with your estate) repay the trust before anyone inherits from you. The money goes back to the trustees for the people the Will was written to look after, usually children and grandchildren. Money you were given outright passes under your own Will or the intestacy rules, which could mean a new husband or wife and, later on, their family.
Inheritance Tax on your death. A gift from the trust becomes part of your own estate, and anything above your allowances is taxed at 40%. A loan is a debt, so it comes off the value of your estate before the tax is worked out. HMRC only allows this where the debt is repaid out of your estate, so a loan the family quietly forgets saves nothing. Two warnings. If you are the life tenant of a life interest trust (the person entitled to the income, often the surviving husband or wife), the trust fund already counts as part of your estate for Inheritance Tax, so a loan does not change the tax, although the other protections still apply. And if you ever gave assets to the person who died, which is common between spouses, an anti-avoidance rule can block the deduction. Take advice in either case.
Divorce. Money you own outright can be brought into a financial settlement. A debt to a trust reduces what you are treated as having, but a family court looks at what is likely to happen in real life. Judges sort family loans into "hard" ones that will have to be repaid and "soft" ones that probably never will be, and they can leave a soft loan out of the sums. A written agreement signed at the time, with trustees who keep records and would call the loan in, is far more likely to be treated as a real debt than a loose family understanding. It is good protection, and nobody can promise it will hold.
Bankruptcy and creditors. If you are made bankrupt, what you own is available to your creditors. With a loan, the trustees become one of those creditors and can claim alongside the rest. If the loan is unsecured they may only get part of it back. If it is secured on a property they are much nearer the front of the queue.
Care fees and means-tested benefits. This is where a loan is weakest on its own. A council assessing you for care fees, or the DWP assessing you for a benefit such as Universal Credit, counts the savings and property you hold. Money you have borrowed and still have, or a house bought with it, is generally counted as yours. Under both the care charging rules and the Universal Credit rules, a debt is only taken off if it is secured on the asset, for example by a legal charge over the house. The protection here comes from elsewhere. Money the trustees have not lent yet is not yours, so it is not counted. A properly secured loan is deducted. And the trustees can call an unsecured loan in, because repaying a debt is not treated as giving money away. Our factsheet on the care fees financial assessment explains how councils look at what you own.
A loan can be unsecured, which means it rests on the borrower's promise, or it can be secured by a legal charge over a property. A charge is registered at the Land Registry in the same way as a mortgage, so the property cannot be sold or remortgaged without the trust being repaid or agreeing.
What a charge adds. It puts the trustees ahead of unsecured creditors if the borrower is made bankrupt. It is the only kind of trust loan that is deducted when a council or the DWP values the property. It stops the borrower selling up and spending the money. And it helps to show a divorce court that the loan is a real one.
What it costs. The charge is a separate deed that a solicitor or licensed conveyancer has to prepare and register, so there are fees. If the property already has a mortgage, that lender has to agree, and many will not allow a second charge. It appears on the public title to the property, and it has to be formally removed when the loan is repaid.
How to decide. A charge is worth having for a large loan going into a property with no mortgage, or where the borrower runs a business, is in an uncertain relationship or may need care. For a smaller loan, or where a lender will not allow a charge, an unsecured loan with a proper agreement still gives more protection than a gift. Either way, the trustees should consider the question and record why they decided as they did. The form at the end of this guide asks about it and writes the answer into the paperwork.
The trust has to carry on. A loan only exists while there is a trust to owe it to. That means registering the trust with HMRC if it runs for more than two years after the death, keeping a trust bank account and records, and reviewing things each year. Our Trust Administration factsheet explains what is involved.
The trust has its own Inheritance Tax charges. A discretionary trust can face a charge of up to 6% every ten years on its value above the nil rate band (the £325,000 tax-free allowance, frozen until April 2031), and the loan counts towards that value. For many family trusts the answer is nothing or very little, and it compares well with 40% in your own estate, but the trustees should work the figure out before relying on it.
The debt is real. The trustees can ask for the money back, and new trustees may take a different view from the ones you know. The amount you owe stays the same even if the money has been spent or the thing you bought has fallen in value.
Everyone has to treat it as a loan. If there is no paperwork, no record in the trust accounts and nobody ever mentions it again, a court or HMRC is entitled to conclude it was a gift all along.
Most of the difficulty with trust loans turns up when the money is going towards a house, because two more parties now have a say: your conveyancer and, if you have a mortgage, your lender.
Expect a "gift pack". As soon as your conveyancer learns that someone else is putting money into the purchase, they will send that person a set of forms: identity checks, questions about where the money came from and a gift letter to sign. Anti-money laundering rules require this of every conveyancer, so the questions do not mean anything is wrong.
Do not sign a gift letter for a loan. A gift letter usually asks the person providing the money to confirm that it is an unconditional gift, that it is not a loan and never has to be repaid, and that they will have no interest in the property. If the trustees are lending you the money, those statements are untrue. Signing anyway is a false statement to a law firm and, through them, to a mortgage lender. It also hands any future court, creditor or tax inspector a signed document saying the money was a gift, which undoes the protection the loan was meant to give.
The trustees provide the money, not Squiggle. Where we are dealing with the estate, the funds may be sent from our client account, and conveyancers sometimes assume we are the ones making the gift. The money belongs to the trust, so the forms and identity checks are for the trustees to complete.
These steps keep a purchase on track.
If part of your deposit does end up as an outright gift and you are buying with a partner, ask your conveyancer about a declaration of trust between the two of you. It records who put in what and does not involve the trustees.
Helen dies leaving £300,000 on discretionary trusts for her two children, Sam and Nisha, and her grandchildren. Sam and Nisha are also the trustees. Helen sold her home some years ago, so the trust holds cash and no residence nil rate band question arises.
Sam is buying his first home with his partner and needs £50,000 towards the deposit. His lender will only accept a gift. Within two years of Helen's death the trustees appoint £50,000 to Sam outright and sign the lender's gift letter, which is true. Sam and his partner sign a declaration of trust recording his contribution.
Nisha is married, runs her own business and wants to clear the last £100,000 of her mortgage. The trustees lend it to her, interest-free and repayable on demand, with Sam approving the decision as the trustee who is not borrowing. Because the mortgage is being paid off there is no lender to object, so the trustees take a legal charge over her house. The remaining £150,000 stays in the trust, which is registered with HMRC.
Fifteen years later Nisha dies. Her executors repay £100,000 to the trust before her estate is shared out. Her taxable estate is £100,000 smaller, which is up to £40,000 less Inheritance Tax if her estate is over her allowances, and the money is back in the trust for her children whatever her own Will or her widower's later Will says. At the trust's ten-year anniversary its value, including the loan, was £250,000, below the nil rate band, so there was nothing to pay. This is a hypothetical example for illustration only.
A trust set up during someone's lifetime, such as our Estate Allocation Trust, can lend to a child or another beneficiary in much the same way. The trust deed takes the place of the Will. Check whether it says anyone else has to agree first, such as a protector, and ask them to sign the loan agreement too.
The exception is a loan back to the person who set the trust up, or to their husband, wife or civil partner. HMRC can tax a loan like that as their income, and because the money came from them in the first place, the debt does not reduce their estate for Inheritance Tax. If that is what you have in mind, please speak to us before any money moves.
Signing a gift letter for money that is a loan. It is untrue, and it is the first document anyone will produce to show the loan was never real.
Paying first and doing the paperwork later. An agreement written after the event, especially once trouble has started, carries far less weight.
Forgetting the loan exists. No trust accounts, no yearly acknowledgement, no mention in the borrower's papers. Years later nobody can prove it was ever a loan.
Writing the loan off when the borrower dies. If the estate does not repay the trust, HMRC will not allow the deduction.
Relying on an unsecured loan for care fees. The debt is only deducted if it is secured on the asset.
A trustee lending to themselves. Without another trustee making the decision independently, the loan is open to challenge.
If the trustees have decided on a loan, the form below prepares three documents: a loan agreement, a record of the trustees' decision and a yearly acknowledgement for the borrower to sign. Everything is produced in your own browser. Nothing you type is sent to us or saved.
It is designed for a simple interest-free loan from a Will trust or a lifetime trust in England and Wales. It records whether the trustees are taking a charge, but it does not produce the charge itself. Please talk to us first if the borrower is the person who set up the trust, the borrower is the only trustee, or the borrower is under 18 or may not be able to make their own decisions.
Your documents
Read each document through before anyone signs. Every trustee and the borrower should sign and date the agreement before the money is transferred, and the signed originals belong with the trust papers.
The right choice between a loan and a gift depends on your family and on the wording of the Will, and a short conversation early on saves a lot of bother later. Pick a time that suits you and your local Squiggle consultant will call you. No pressure, just a friendly chat. Book a call or call 01233 659 796.
Talk to Squiggle: 01233 659 796 | hello@squiggleconsult.co.uk | www.squiggleconsult.co.uk | Book a free call: meet.squiggleconsult.co.uk
The nil rate band is £325,000, frozen until 5 April 2031. Squiggle Consult are estate planning consultants, not solicitors, financial advisers or mortgage brokers, and nothing here recommends a loan, a gift or a lender. The loan paperwork is a standard template that we have not checked against your Will or trust deed. This factsheet is general information for England and Wales, not legal, tax or financial advice, and the rules can change. Please take advice about your own circumstances. Last reviewed: October 2026.
Registered number: 10816512.
Registered office: Squiggle Consult Ltd, Suite 2069, Letraset Building, Wotton Road, Ashford, Kent, TN23 6LN
Squiggle Consult Ltd. is a limited company registered in England and Wales.
