Understanding Trusts
How trusts work and where they fit into your estate planning.
Important: This page gives a general overview only. It is not financial, legal, or tax advice. Trust law is complicated, and the tax rules shift from one Budget to the next. Get a solicitor or tax adviser involved before you create a trust.
What Is a Trust?
Legal Arrangement
You give your assets to people you trust (the trustees) and tell them who should benefit from those assets (the beneficiaries). The person setting this up is called the settlor.
Three Key Roles
The same three roles show up every time: the person who creates it, the people who run it, and the people it was set up for.
Control & Protection
A trust lets you control when and how assets are handed over. They are particularly useful for looking after vulnerable family members, and in some cases they offer tax planning advantages.
Types of Trust You Should Know About
Bare Trusts
The beneficiary has an absolute right to the trust assets. Often used for children — they can access the assets when they turn 18 (or 16 in Scotland).
Discretionary Trusts
The trustees choose when and how to hand out income and capital to the people named in the trust. Offers flexibility but has specific tax rules.
Life Interest Trusts
One person (the life tenant) receives income or use of the assets during their lifetime. On their death, the assets pass to the remaining beneficiaries.
Vulnerable Person Trusts
Built for beneficiaries who have a disability or are under 18 and have lost a parent. Special tax rules can apply, which often makes them more efficient than other trust types.
Key Things to Consider
IHT on Trusts
Assets above the £325,000 nil rate band going into a trust can trigger an inheritance tax charge. Your adviser will run the numbers.
Trust Tax Rules
Trusts pay their own tax. Depending on the trust type and what it holds, income tax, capital gains tax, and IHT can all come into play.
Trustee Responsibilities
Trustees have real legal responsibilities: look after the assets properly, act in the beneficiaries’ interests, and keep accurate records of everything.
Professional Setup
Setting up a trust typically requires a solicitor to ensure it is legally valid and achieves your intended purpose. DIY trusts can create unintended consequences.
Trusts and Wills
You can create a trust within your will (a will trust). This is a common way to protect assets for children or a surviving spouse.
Regular Reviews
Go back and look at your trust regularly. Tax rules move, family circumstances change, and something set up five or six years ago may no longer do what you need.
Get Professional Help
Trust law and taxation is complex and changes regularly. The information on this page provides a general overview only. Before setting up any trust, you should always consult a solicitor who specialises in trust law and, where appropriate, a qualified tax adviser. Keystone Estate Planning helps you create wills and lasting powers of attorney — we do not set up or administer trusts.
Start Your Estate Plan
A will is the foundation of any estate plan. You can also include trust provisions within your will.