Do I Need a Trust? A Plain-English Guide for UK Estate Planning

“Do I need a trust?” is a question that comes up a lot in estate planning conversations, often because the idea feels sophisticated or protective. In reality, trusts suit specific situations, and most people’s needs are met perfectly well by a straightforward will. Here’s a plain-English look at when a trust genuinely helps, and when it doesn’t.

What a trust actually is

A trust is a legal arrangement where assets, money, property, investments, are held and managed by one or more trustees, on behalf of one or more beneficiaries, according to terms set out in a trust deed by the person creating the trust (the settlor). The trust deed is the document a solicitor drafts to record who the trustees and beneficiaries are, what the trust fund can be used for, and how it should eventually be distributed.

Once assets are transferred into a trust, they’re no longer legally the settlor’s own, they belong to the trust, managed under its rules, and become part of the trust fund rather than part of the settlor’s personal estate. This separation is what gives a trust its uses: control over timing, protection for beneficiaries who can’t manage assets themselves, and in some cases a role in Inheritance Tax planning. Most UK trusts also have to be registered with HMRC’s Trust Registration Service, whether or not they have a tax liability, which is one of the ongoing admin points worth knowing about before setting one up.

Common reasons people set one up

There are a handful of situations where a trust genuinely solves a problem a will alone can’t. Different types of trust suit different goals, and the type chosen affects both how it’s run and how it’s taxed:

• Protecting assets for minors or vulnerable beneficiaries. A trust can hold money for a child until they reach an age the settlor chooses, rather than it passing to them outright at 18. It can also protect a beneficiary who has a disability, addiction, or can’t manage money themselves. This is often done through a discretionary trust, where trustees have some flexibility over how and when income or capital is paid out to beneficiaries, or a bare trust, where a beneficiary has an absolute right to the assets held in trust once they reach 18, with less flexibility for the trustees.
• Controlling how and when beneficiaries inherit. Some people want to stagger an inheritance, for example releasing funds at set ages, or want a surviving spouse to benefit from an asset, often the family home, during their lifetime with it passing to children afterwards. This second scenario is typically structured as a life interest trust (also called an interest in possession trust), giving one beneficiary the right to income or use of an asset for their life, with the underlying asset passing to others afterwards.
• Certain Inheritance Tax planning. Some trust structures can be used as part of a wider estate plan, for example to remove an asset from an estate over time, though the tax treatment varies significantly by trust type and is not a simple exemption.
• Passing on a family business or other assets across generations. Trusts are sometimes used where a family wants to keep a business, land, or other assets together as family wealth rather than split between individual owners. A charitable trust is a separate category again, set up to hold assets for a charitable purpose rather than for named individuals, and is governed by different rules again.

Trusts, care fees, and asset protection

A trust is sometimes suggested as a way to protect a home or savings from being counted towards care home fees. This is a much narrower area than most people assume. Local authorities carry out a financial assessment when means-testing care costs, and if assets were transferred into a trust mainly to avoid that assessment, this can be treated as deliberate deprivation of assets, meaning the local authority can still treat the asset as though it were still owned by the person needing care. A trust set up well in advance, for other genuine reasons, is a different position from one set up shortly before care is needed, so this is an area where the timing and the real purpose of the trust both matter, and it needs proper advice rather than a generic assumption that a trust protects assets from care fees.

Lifetime trusts vs trusts created by a will

Trusts aren’t all set up in the same way. A lifetime trust is created while the settlor is still alive, with assets transferred in straight away. A testamentary trust, by contrast, is created by the terms of a will and only comes into existence on death, often used to hold a share of an estate for children until they reach a certain age, or to set up a life interest trust for a surviving spouse. The tax and administration rules differ slightly depending on which route is used, which is another reason a solicitor drafting a will needs to understand what the trust is meant to achieve before the wording is finalised.

The 7-year rule and trusts

Gifts made into most trusts are treated in a similar way to other lifetime gifts for Inheritance Tax purposes, they’re potentially exempt from tax if the settlor survives 7 years, but some types of trust are subject to an immediate charge on transfer, plus ongoing periodic charges (typically every 10 years) and exit charges when assets leave the trust. The exact treatment depends heavily on the type of trust used, so this is not a one-size-fits-all area, and it’s easy to overstate the Inheritance Tax benefit of setting one up.

Why most people don’t need one

For the majority of people, a well-drafted will achieves what they want: assets pass directly to chosen beneficiaries, in the proportions intended, as part of their estate, without the ongoing administration, trustee duties, and periodic tax charges that come with a trust.

Trusts add complexity and cost: trustees have legal duties and personal liability, trust accounts and tax returns are usually needed each year, and the rules on charges can be intricate. Setting one up “just in case,” without a clear reason tied to your actual circumstances, often creates more admin than benefit.

Why this needs a solicitor, not just an accountant

A trust is a binding legal document with specific terms for how assets are held, managed, and distributed. Drafting it correctly, and choosing the right type of trust for the goal in mind, is legal work governed by trust law and needs a solicitor or other qualified legal professional.

Where an accountant’s role fits in is the tax side: how trust income is taxed and reported, whether the arrangement counts as a settlor-interested trust (which changes who’s taxed on the income), the Capital Gains Tax position when assets go in or come out, and how the trust interacts with the wider Inheritance Tax position of the settlor’s estate, all covered in GOV.UK’s guidance on trusts and taxes. Getting good advice usually means involving both a solicitor for the legal structure and an accountant for the tax consequences, rather than treating either as sufficient on its own.

Trusts vs a will

It helps to think of this as trusts vs a will, rather than trusts as an upgrade to a will. A will takes effect once, on death, and is usually simpler to set up and to wind up. A trust can run for years, sometimes decades, with trustees managing assets in trust on an ongoing basis, filing trust accounts and tax returns, and applying the terms of the trust deed as circumstances change. That ongoing management is the trade-off for the extra control a trust gives you.

Before deciding

If you’re weighing up whether a trust makes sense, it’s worth being clear first about the actual problem you’re trying to solve, protecting a young beneficiary, controlling timing, or a specific Inheritance Tax goal, rather than starting from “should I have one.” Our Inheritance Tax guide and nil-rate band and gifting guide cover what a will and lifetime gifting can already achieve without the added complexity of a trust.