Trusts

What is a trust, and why do they matter?

A trust is one of the oldest and most flexible tools in estate planning. At its simplest, it is a legal arrangement in which one or more people — the trustees — hold and manage assets for the benefit of others — the beneficiaries. The person who creates the trust and puts assets into it is the settlor. Once assets are placed in trust, they are legally separated from the settlor's personal estate, which is precisely what makes trusts so useful for protecting wealth, planning for vulnerable family members and controlling how money is eventually passed on.

Trusts matter because they let you keep a guiding hand on your assets even after you have given them away or died. Instead of leaving a lump sum outright — which a beneficiary could spend immediately, lose in a divorce, or have counted against means-tested benefits — a trust lets you set the rules. You decide who benefits, when, and under what conditions. For a plain-English walkthrough of the mechanics, our guide on what a trust is and how trusts work is the best place to start.

The main types of trust in England and Wales

There is no single "trust" — the right structure depends entirely on what you are trying to achieve. The most common types include:

• Bare (absolute) trusts — the simplest form, where the beneficiary has an immediate and absolute right to the assets and the income from them. Often used to hold money for children until they are old enough to receive it directly.
• Discretionary trusts — the most flexible option, where trustees decide which beneficiaries receive what, and when. Nobody has an automatic right to the assets, which makes these powerful for protecting wealth and adapting to changing family circumstances. Our guide on discretionary trusts explains how this flexibility works in practice.
• Interest in possession (life interest) trusts — where one beneficiary has the right to income from the trust, or to live in a property, for their lifetime, after which the assets pass to others. Commonly used to provide for a surviving spouse while ultimately protecting an inheritance for children.
• Family trusts — a broad term for trusts set up to protect and pass on wealth across generations. These can shield a family home, investments or a business from being eroded by care fees, divorce or poor financial decisions. See our dedicated guide on family trusts and protecting assets for future generations.

Who needs a trust?

Trusts are not just for the very wealthy. You may benefit from one if you:

• Want to provide for young children or grandchildren without handing them a large sum before they are mature enough to manage it.
• Have a disabled or vulnerable family member whose entitlement to means-tested benefits could be affected by a direct inheritance.
• Wish to protect assets for children from a previous relationship while still providing for a current spouse or partner.
• Are concerned about a beneficiary's marriage breaking down, or about creditors or bankruptcy.
• Own a business or significant investments and want an orderly, controlled succession.
• Want to ring-fence part of your estate in case of future care needs.

Trusts can also play a role in Inheritance Tax (IHT) planning, though this is an area where care is essential. The IHT nil-rate band is £325,000 per person, frozen until April 2030, with an additional residence nil-rate band of up to £175,000 where a main home passes to direct descendants (tapered for estates over £2 million). A married couple or civil partners can, in the right circumstances, pass up to £1 million free of IHT. Trusts can help structure how these allowances are used, but they are not a simple way to make tax disappear — the rules are complex and the wrong arrangement can create charges rather than save them.

How setting up a trust works

Creating a trust follows a clear sequence, though the detail varies by type:

• Define your goal. Decide what you want the trust to achieve — protecting a property, providing for a child, or controlling a future inheritance.
• Choose the right structure. The trust type must match the goal. This is where professional advice earns its keep.
• Appoint trustees. These are the people (or professionals) who will manage the trust. Choose individuals who are trustworthy, organised and likely to outlive the need for the trust, or use a professional trustee.
• Draft the trust deed. This is the legal document that sets out the rules, the beneficiaries and the trustees' powers.
• Transfer assets in. The trust only works once assets are formally placed into it.
• Register and administer. Most trusts must now be registered with HMRC's Trust Registration Service, and trustees have ongoing duties including record-keeping and, where relevant, tax reporting.

A trust can be created during your lifetime (a "lifetime trust") or written into your will to take effect on death (a "will trust"). The right timing depends on your circumstances and goals.

The ongoing duties of trustees

Being a trustee is a serious legal responsibility. Trustees must act in the best interests of the beneficiaries, follow the terms of the trust deed, keep accurate accounts, manage investments prudently and meet tax and registration obligations. Trusts can also be subject to their own tax treatment — including periodic and exit charges for some types — so trustees should take advice rather than assume the trust simply runs itself.

Common mistakes to avoid

• Using a trust for the wrong reason. Schemes marketed aggressively as a way to dodge care fees or wipe out IHT often fail, can be challenged, and may leave families worse off. Be wary of one-size-fits-all "asset protection trust" sales pitches.
• Choosing the wrong trustees. Appointing someone unsuitable, or too few trustees, can cause real problems years down the line.
• Forgetting to fund the trust. A trust deed with no assets transferred into it achieves nothing.
• Ignoring ongoing administration. Missed HMRC registration, poor records and overlooked tax charges are common and avoidable.
• Not reviewing the trust. Family circumstances and the law change. A trust set up a decade ago may no longer do what you need.

What trusts cost

Costs vary with complexity. A straightforward will trust drafted as part of your will costs far less than a bespoke lifetime discretionary trust holding property and investments. You should also factor in possible ongoing costs — professional trustee fees, accountancy for tax returns, and periodic reviews. The key is transparency: a reputable planner will quote a clear, fixed price for the work and explain the likely ongoing costs before you commit, so there are no surprises.

How Ask an Estate Planner helps

Trusts are powerful but genuinely complex, and the gap between good advice and a mis-sold product can be wide. Ask an Estate Planner is a free, independent comparison service that connects you with BCEP-trained estate planners covering your area. You can compare fixed-price quotes side by side, so you know exactly what you will pay before you decide — no hidden fees and no pressure.

Because we are independent, we do not steer you toward any one provider. We simply help you find qualified, local professionals who can tell you honestly whether a trust is right for you, which type suits your goals, and how it fits alongside your will, your Lasting Powers of Attorney and the rest of your estate plan. Start by reading our in-depth guides — beginning with what a trust is, then exploring family trusts and discretionary trusts — and then compare quotes from planners who can turn that understanding into a plan that protects your family.