Setting Up a Trust for Children UK 2026 — Complete Guide

Trusts can be an excellent way to pass assets to children while maintaining some control. But choosing the right type and understanding the tax implications is essential.

Types of Trusts for Children

Comparison Table

Bare Trusts Explained

What Is a Bare Trust?

A bare trust is the simplest form:

• Child is the absolute beneficial owner
• Trustee only holds legal title until child is 18
• At 18, child can demand all assets
• No discretion — child has full entitlement

Tax Treatment of Bare Trusts

Important parental exception: If a parent creates a bare trust for their own child under 18 and income exceeds £100/year, it’s taxed as the parent’s income. This doesn’t apply to grandparents, aunts/uncles, or others.

Setting Up a Bare Trust

DIY Method:

1. Write a simple trust declaration stating:
   • You’re holding assets on trust for [child’s name]
   • Child becomes absolutely entitled at 18
   • Sign and date
2. Open an investment account in your name “as trustee for [child]”
3. Transfer assets or cash into the account

Professional Setup:

• Solicitor can draft formal trust deed (£300-£500)
• Ensures legal certainty
• Recommended for larger amounts

Bare Trust Investment Options

Discretionary Trusts Explained

What Is a Discretionary Trust?

Trustees have complete discretion over:

• Who benefits (from a class of beneficiaries)
• When to distribute
• How much to distribute
• What form distributions take

Why Use a Discretionary Trust?

Tax Treatment of Discretionary Trusts

IHT on creation:

• Gifts into discretionary trusts are “chargeable lifetime transfers”
• If over the nil-rate band (£325,000), 20% IHT immediately
• Periodic charges: 6% every 10 years on value over NRB
• Exit charges when assets leave the trust

Setting Up a Discretionary Trust

Required documents:

1. Trust deed — sets out rules and beneficiaries
2. Letter of wishes — guidance for trustees (non-binding)
3. Trustee appointment forms

Trustees:

• Need minimum of 2 trustees (or a trust corporation)
• Often parents plus another family member
• Can include professional trustee for large trusts
• Up to 4 individual trustees maximum

Costs:

18-25 Trusts

What Is an 18-25 Trust?

A special type of trust (technically a “relevant property trust”) where:

• Child must receive capital by age 25
• Created in a will for your own child
• Reduced IHT charges compared to discretionary
• Income during trust taxed at trust rates

When to Use 18-25 Trusts

Tax Treatment

Trust Tax Returns

When Returns Are Required

Filing Requirements

Trust Registration Service

Since 2022, most trusts must register:

• Discretionary trusts — must register
• Bare trusts with tax liability — must register
• Bare trusts with UK tax implications — must register
• Online registration via GOV.UK
• Annual confirmation required

Practical Considerations

Choosing Trustees

What Trusts Can Hold

Letter of Wishes

Not legally binding but guides trustees:

• When you’d like distributions made
• What you’d like money used for (education, house deposit)
• Any concerns about beneficiaries
• How to balance between beneficiaries
• Update regularly as circumstances change

Trust vs Other Options

Trust vs Junior ISA

Trust vs Child Pension

When to Use Each

Step-by-Step: Setting Up a Bare Trust

DIY Process

1. Decide on trustee(s)

   • Usually yourself
   • Can add co-trustee for security

2. Write trust declaration

   Declaration of Bare Trust
   
   I, [Your Name], declare that I hold the following assets
   on bare trust for [Child's Name], born [Date of Birth]:
   
   [Description of assets or "all assets held in Account X"]
   
   [Child's Name] is absolutely entitled to these assets
   and shall have the right to demand transfer of full
   legal title on reaching age 18.
   
   Signed: ________________
   Date: ________________
   

3. Open trust account

   • Choose investment platform
   • Open in “[Your Name] as trustee for [Child’s Name]”
   • Provide child’s details

4. Transfer assets

   • Cash contributions
   • Transfer existing investments
   • Keep records of all contributions

5. Keep records

   • Trust declaration
   • All contributions and dates
   • Investment statements
   • Any income received

Step-by-Step: Setting Up a Discretionary Trust

Professional Process

1. Consult solicitor or trust specialist

   • Explain goals and concerns
   • Discuss tax implications
   • Get fee quote

2. Draft trust deed

   • Defines trustees, beneficiaries, powers
   • Usually takes 1-2 weeks
   • Review carefully before signing

3. Execute deed

   • Sign with witness
   • Trustees all sign

4. Register trust

   • Trust Registration Service within 90 days
   • Obtain Unique Taxpayer Reference

5. Transfer assets

   • Consider IHT implications
   • Keep within nil-rate band if possible
   • Or expect 20% immediate charge

6. Ongoing administration

   • Annual tax return
   • Investment management
   • Trustee meetings/decisions
   • 10-year reviews

Costs Summary

Common Questions

Can I Change My Mind?

What If Child Dies Before 18?

• Bare trust: Assets pass via child’s estate
• Discretionary trust: Redistributed per trust deed
• Include contingent beneficiaries in trust deeds

What About Multiple Children?

• Separate bare trusts for each child
• Or one discretionary trust with all children as beneficiaries
• Trustees can allocate based on needs