Trusts have been used for centuries to manage and safeguard wealth, yet they continue to be among the least understood aspects of estate planning. Although often seen as complicated or solely for the very wealthy, a trust is simply a legal arrangement that separates ownership from control for the benefit of a beneficiary.
When properly constructed, trusts can regulate how assets are utilised, protect against creditors and disputes, prevent probate for enhanced privacy and faster proceedings, and reduce costs and family disagreements.
Today, with changing tax laws and increasingly varied family structures, such as blended families, unmarried partners, and dependents with special needs, trusts remain essential for efficient and effective asset transfers. They provide precise control over timing and conditions, enable the inclusion of safeguards or incentives, and can align with charitable or business succession aims. Whether protecting a home, managing investments, or planning for incapacity, trusts offer adaptable control, protection, and flexibility across generations.
Demystifying the Structure of a Trust
At its core, a trust is a formal arrangement involving three main parties. First, there is the settlor, the person who establishes the trust and transfers assets into it, such as property, cash, or investments. Next are the trustees, the individuals or professionals appointed to oversee these assets according to the settlor’s instructions. Trustees have a legal obligation to act in the best interests of the final party, the beneficiaries, who are the people or organisations intended to benefit from the trust.
This simple yet powerful structure allows the settlor to determine the terms for how their wealth is managed and distributed long after they are gone. For example, a settlor can specify that funds should only be used for a grandchild’s education or that a vulnerable relative receives a regular income for life.
Because managing a trust involves significant legal and financial responsibilities, many people choose to appoint professional trustees, such as a solicitor or trust company, to ensure impartial governance and strict compliance with the law.
Navigating the Different Types of Trusts
The UK legal system offers various trusts, each tailored for different situations.
A bare trust is the simplest type, where the beneficiary has an absolute right to the assets and income once they turn 18 (or 16 in Scotland). It is often used to hold assets for children.
An interest in possession trust grants a beneficiary, known as the life tenant, the right to receive income from the trust for their lifetime, but they cannot access the capital. After their death, the capital passes to other specified beneficiaries.
More adaptable options include discretionary trusts, where trustees have broad powers to decide which beneficiaries receive assets, how much they receive, and when. These are particularly useful for adjusting to evolving family needs.
Specialised trusts also exist, such as vulnerable person’s trusts or disabled person’s trusts, which can offer favourable tax treatment when established for beneficiaries who meet specific criteria. Finally, charitable trusts allow assets to be allocated to causes you value, creating a lasting philanthropic legacy.
When a Trust Is the Right Solution
There are many situations where a trust can be extremely effective. For blended families, a trust can ensure that a new spouse is cared for during their lifetime, while making sure that original assets eventually pass to children from a previous relationship.
Trusts also play an important role in planning for beneficiaries who may be vulnerable due to age, disability, or an inability to manage their own finances, protecting them from poor decisions or external influence.
They are widely used in business succession planning, allowing ownership to transfer smoothly without disrupting day-to-day operations. For those with charitable ambitions, trusts provide a formal, long-term structure for giving.
In all cases, the core purpose is the same: to provide a level of control and protection that a simple outright gift or inheritance cannot offer, ensuring your wishes are followed precisely.
The Tax Landscape in 2025/26
Understanding the tax implications of trusts is essential.
For Inheritance Tax (IHT), everyone has a nil-rate band of £325,000 for the 2025/26 tax year. This is the amount that can be passed on without paying IHT. Estates are generally taxed at 40% on values above this threshold.
An additional residence nil-rate band may apply when a main residence is passed to direct descendants. For the 2025/26 tax year, this remains £175,000 per individual and can be added to the standard nil-rate band. This allowance may be reduced for estates valued over £2 million. Any unused residence nil-rate band can be transferred between spouses or civil partners, potentially allowing a combined allowance of up to £350,000.
Making Significant Gifts
Gifting assets during your lifetime can help reduce IHT, but the seven-year rule applies. If you die within seven years of making a significant gift, it may still be included in your estate.
Taper relief may reduce the tax payable on gifts made between three and seven years before death. Several exemptions may apply, including the £3,000 annual gift allowance (with one year’s carry-forward), small gifts of up to £250 per recipient, and regular gifts made from surplus income, provided they are well documented.
Most trusts, particularly discretionary trusts, are treated as relevant property trusts for tax purposes. These may be subject to periodic charges, commonly known as ten-year charges, of up to 6% on assets above the nil-rate band. Exit charges may also apply when capital is distributed.
Income Tax and Capital Gains Tax are also important considerations, as trusts typically pay tax at higher rates than individuals, although beneficiaries may be able to reclaim overpaid tax depending on their circumstances.
Advantages Versus Potential Hurdles
The benefits of creating a trust are considerable. Trusts provide control over how assets are distributed, allowing you to set conditions and timescales. They also offer protection from external risks, such as divorce or creditors, because the trust — not the individual — owns the assets.
Assets held in trust are generally outside your estate for probate purposes, which can make distribution faster, more private, and less prone to disputes.
However, trusts are not suitable for everyone. Establishing a trust involves legal costs, and ongoing administration can be complex. Most trusts must be registered with HM Revenue & Customs through the Trust Registration Service, and trustees are responsible for compliance, investment management, and tax reporting. Without professional support, this can become burdensome.
Adapting to Life’s Uncertainties
A trust’s true value lies in its ability to balance long-term control with the flexibility to adapt as circumstances change. It provides a clear blueprint for your legacy, helping to protect loved ones while ensuring your intentions are honoured for years to come.
For some people, simpler solutions such as lifetime gifts or updating a Will may be sufficient. For others — particularly those with complex family arrangements, vulnerable beneficiaries, or specific inheritance goals — a well-structured trust offers a level of reassurance that few alternatives can match.
Ultimately, securing your legacy is about finding the right balance between control, simplicity, and effective long-term management.
