A trust is a legal arrangement where you (settlor) give assets to trustees to manage for beneficiaries. Trustees legally own the assets but must manage them according to the trust's rules. Trusts can protect assets, reduce tax, provide for vulnerable people, or control when beneficiaries receive money.

Do I need a trust UK?

Most people don't need a trust — a well-written will is sufficient. Trusts are useful if: protecting assets for vulnerable people, controlling when children inherit, protecting from care home fees (with limits), keeping assets in the family on remarriage, or complex tax planning.

What are the different types of trusts UK?

Main types: Bare trusts (beneficiary has immediate right), Life Interest trusts (income to one person, capital to another), Discretionary trusts (trustees decide distributions), and Accumulation trusts (income can be accumulated). Each has different tax rules and uses.

Are trusts tax efficient UK?

Trusts have their own tax regime — often at high rates (45% income, 20%/28% CGT). Trusts can help with inheritance tax planning, but the 2006 changes made many trusts less tax-efficient. Professional advice essential as rules are complex and mistakes costly.

Money & Budgeting

Trusts Explained UK — When and Why to Use Them

Guide to trusts in the UK. Different types of trusts, when to use them, tax implications, and whether you need one for estate planning.

By PocketWise · 24 March 2026 · 5 min read

Trusts can be useful estate planning tools, but they’re not for everyone. Here’s what you need to know.

What Is a Trust?

Basic Structure

Role	Who They Are
Settlor	Person who creates the trust
Trustee	Person who manages the trust
Beneficiary	Person who benefits
Trust property	Assets in the trust

How Trusts Work

Step	What Happens
1. Creation	Settlor sets up trust with assets
2. Legal ownership	Passes to trustees
3. Management	Trustees follow trust rules
4. Benefits	Flow to beneficiaries

Why Use a Trust?

Purpose	Example
Protect assets	For vulnerable people
Control timing	When beneficiaries receive
Protect from remarriage	Keep assets in bloodline
Tax planning	Some IHT advantages
Privacy	Trusts not public

Types of Trusts

Bare Trusts

Feature	Details
Beneficiary’s right	Absolute and immediate
Trustee’s role	Hold assets legally
When used	Junior ISAs, children’s savings
Tax	Taxed as beneficiary’s income
Control	Beneficiary can demand assets at 18

Life Interest Trusts

Feature	Details
How it works	One person gets income for life
Then what	Capital passes to different beneficiaries
Common use	Provide for spouse, protect for children
Tax	Life tenant pays income tax

Discretionary Trusts

Feature	Details
Trustees decide	Who gets what and when
Flexible	Can respond to circumstances
Tax	Complex — trust rates apply
Common use	Protect vulnerable, control inheritance

Accumulation and Maintenance Trusts

Feature	Details
Income	Can be accumulated
For	Under 25s typically
Then	Beneficiary receives at stated age
Tax	Changed in 2006, less favourable

Common Trust Uses

Protecting for Children

Concern	Trust Solution
Too young to inherit	Trustees manage until older
Spendthrift child	Discretionary trust controls access
Protect from divorce	Assets stay protected
Multiple children	Fair distribution over time

Life Interest for Spouse

Scenario	How It Works
Second marriage	Spouse gets income from house
On spouse’s death	House passes to your children
Protects	Both spouse and children

Disabled Person’s Trust

Feature	Details
Special rules	More favourable tax treatment
Purpose	Provide for disabled beneficiary
Benefits protection	Usually doesn’t affect entitlements
Trustees	Can manage on their behalf

Protecting from Care Fees

Important Warning
Deliberate deprivation	Council can challenge
If done to avoid fees	May be undone
Must be genuine	And done before care needed
Limited effectiveness	For care fee planning

Setting Up a Trust

How to Create

Method	When Used
In your will	Common for family trusts
Lifetime trust	Created while alive
Deed of trust	Formal written document

What You Need

Element	Details
Trust deed	Legal document setting out rules
Trustees	Named individuals/professionals
Settlor	You
Beneficiaries	Who benefits
Trust property	Assets being placed in trust

Choosing Trustees

Consider	Why Important
Trustworthy	Managing others’ money
Capable	Understanding responsibilities
Younger than you	If lifetime trust
Professional?	For complex trusts
Multiple	Cover if one can’t act

Trust Taxation

Income Tax

Trust Type	Tax Rate
Bare trust	Beneficiary’s rate
Discretionary	45% (above £1,000 band)
Life interest	Life tenant’s rate

Capital Gains Tax

Situation	Rate
Trust disposal	20% (24% property)
No annual exemption	Very limited allowance

Inheritance Tax — Creation

Lifetime Gift to Trust	IHT
Up to £325,000	Nil-rate band
Above nil-rate band	20% immediate charge

Inheritance Tax — Ongoing

Event	IHT Charge
10-year anniversary	Up to 6% of trust value
Exit charges	When assets leave trust
Calculation	Complex — needs professional help

Do You Need a Trust?

Probably Yes If

Situation	Why Trust Helps
Vulnerable beneficiary	Protection and management
Concern about beneficiary	Spendthrift, divorce, bankruptcy
Second marriage	Protect children’s inheritance
Business assets	Continuation planning
Complex estate	Multiple considerations

Probably No If

Situation	Alternative
Simple estate	Well-written will
Spouse inherits everything	Simple will
Children are adults, capable	Direct inheritance
Want low cost/simple	Will is cheaper

Warning Signs of Mis-Selling

Red Flag	Concern
“Avoid all care fees”	Usually can’t
“No tax ever”	Usually wrong
High-pressure sales	Walk away
Sold by non-lawyers	May be invalid
Too good to be true	It is

Trust Costs

Set-Up Costs

Type	Typical Cost
Simple will trust	Included in will (£200-£500)
Lifetime discretionary	£1,000-£3,000
Complex structure	£2,000-£5,000+
Registration	Free (but ongoing reporting)

Ongoing Costs

Cost	Details
Administration	Trustee time
Professional trustees	Annual fees
Tax returns	If trust has income
Accountancy	For complex trusts

Trust Administration

Trustee Duties

Duty	What It Means
Follow trust rules	As set out in deed
Act in beneficiaries’ interests	Their benefit
Be impartial	Between beneficiaries
Keep records	Of all decisions
Invest prudently	Standard investment criteria

Trust Registration

Requirement	Details
TRS registration	Most trusts now required
Deadline	Within 90 days
Annual declarations	May be required
Penalties	For non-compliance

Summary: Trust Considerations

Trust Decision Checklist

Question	If Yes, Consider Trust
Vulnerable beneficiaries?	☐
Concern about beneficiary spending?	☐
Need to control timing?	☐
Remarriage protection needed?	☐
Complex family situation?	☐
Substantial estate?	☐

If You’re Considering a Trust

Step	Action
1	Identify what you want to achieve
2	Get independent legal advice
3	Understand tax implications
4	Consider alternatives
5	Choose trustees carefully
6	Review regularly

Key Points

Reminder	Details
Most people don’t need trusts	A good will often suffices
Tax isn’t always advantageous	Trust tax can be high
Professional advice essential	Complex rules
Care fee avoidance limited	Don’t be mis-sold
Ongoing administration	Not set and forget

Get Professional Advice

Professionals	For
Solicitor	Trust creation
Accountant	Tax implications
Financial adviser	Overall planning

Trusts are powerful tools when used correctly, but they’re not magic solutions. Most people are better served by a well-drafted will. If you think you need a trust, get proper legal advice — the costs of getting it wrong far outweigh the fees for getting it right.

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Sources

MoneyHelper — Everyday money