Trusts explained: the main types and how families use them
A trust separates the legal ownership of assets from the benefit of them. That lets you provide for people while deciding who controls the money, for how long and on what terms.
By Robert Festenstein, Head of Legal
Updated 26 October 2026
4 min read
Key takeaways
- A trust has a settlor who creates it, trustees who own and manage the assets, and beneficiaries who benefit.
- The main types are bare trusts, life interest trusts and discretionary trusts.
- Trusts can be set up during your lifetime or in your will.
- Trustees have legal duties and are personally liable if they breach them.
How a trust works
The settlor transfers assets, such as cash, investments or property, to trustees. The trustees hold the assets for the beneficiaries on the terms set out in the trust deed or will. A trust can last for many years and can include beneficiaries who are not yet born, such as future grandchildren.
Most settlors also write a letter of wishes. It is not legally binding, but it tells the trustees how the settlor would like them to use their discretion.
The main types
- Bare trust. The beneficiary is entitled to the assets outright and can take them at 18. Trustees simply hold them until then. Often used for gifts to grandchildren.
- Life interest trust. One person, often a surviving spouse, receives the income or the right to live in a property for life. On their death the capital passes to others, such as children. This is common in second marriages, where each partner wants to provide for the other while protecting their own children's inheritance.
- Discretionary trust. The trustees decide which beneficiaries receive income or capital, and when. This gives the most flexibility and protection, for example for young or vulnerable beneficiaries, or where a beneficiary is going through a divorce or has debts.
- Trusts for vulnerable beneficiaries. Trusts for a disabled person or a bereaved minor can receive more favourable tax treatment if they meet the conditions.
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Lifetime trusts and will trusts
A trust made during your lifetime takes effect immediately. It is used to start passing wealth on while you can see how the trustees manage it, and gifts into it begin the seven-year clock for inheritance tax. A trust in your will only takes effect on your death. It is used to control how an inheritance is held, for example until children reach 25, or to give the family flexibility to decide after your death.
Life insurance policies are often written in a simple trust so that the payout goes to the family quickly and outside the estate. See protecting your family.
Trustees and their duties
Trustees must act in the beneficiaries' interests, follow the terms of the trust, act together unless the deed says otherwise, and not profit from the role. They must take proper care in investing the trust's assets, take advice where needed, keep accounts and records, and register the trust with HMRC's Trust Registration Service unless it is one of the excluded types. Most families appoint two to four trustees, often a mix of family members and a professional.
Tax
Trusts have their own inheritance tax, income tax and capital gains tax rules, which depend on the type of trust. Transfers into most lifetime trusts are taxed at 20% on value above the nil-rate band, and discretionary trusts face ten-yearly charges. Our guide to trusts and tax covers the details.
Our solicitors draft trusts and advise trustees. Our accountants register them, prepare trust accounts and tax returns, and calculate ten-year charges.
Frequently asked questions
What is the difference between a bare trust and a discretionary trust?
In a bare trust the beneficiary is entitled to the assets outright from 18. In a discretionary trust the trustees decide who benefits and when.
Why would I put money in trust rather than give it outright?
To keep control over when and how beneficiaries receive it, to protect it from divorce or debts, or to provide for someone vulnerable.
Can I be a trustee of my own trust?
Yes, a settlor can usually be one of the trustees. If you can benefit from the trust yourself, it is treated differently for tax.
Do trusts have to be registered?
Most UK express trusts must be registered on HMRC's Trust Registration Service, even if they pay no tax.
Sources & further reading
This article is general information, not advice. Tax, financial and legal rules change and their effect depends on your circumstances. Check the current position and take professional advice before acting. Last reviewed 26 October 2026. Totus One Limited (company no. 16855798).
A solicitor who has led his own SRA-regulated practice for over two decades, specialising in disputes and insolvency.
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