Trusts explained, without the jargon
Trusts are sold hard and explained badly. Here is what one actually is, the handful of types that matter for ordinary families, and the honest answer on when you do not need one.
The short answer
- A trust is a legal arrangement where trustees hold assets for beneficiaries. Ownership and benefit are split — that split is the whole point.
- For most families only three types matter: a property protection trust (ring-fences a share of the home), a discretionary trust (flexible, for vulnerable or unpredictable situations), and a bare trust (holds a gift for a child until 18).
- A trust in a will costs nothing extra to run until you die and is the most common route for care-fee planning. A lifetime trust is a bigger step with real tax consequences.
- Most relevant property trusts face an entry charge of up to 20% on value above the nil-rate band, a ten-yearly charge of up to 6%, and exit charges.
- A trust is not a way to hide assets from care fees. Do that and the council can apply the deliberate deprivation of assets rules, with no time limit.
What's on this page
What is a trust, in one sentence?#
A trust is an arrangement where one group of people (the trustees) legally own something for the benefit of somebody else (the beneficiaries), under rules set by the person who created it (the settlor).
That is it. The clever part is only that legal ownership and actual benefit are separated. Once you have grasped that, everything else is detail.
- Settlor
- The person who puts assets into the trust. That is you.
- Trustees
- The people who legally hold and manage the assets. They have real legal duties and can be held personally liable if they get it wrong. Usually two to four people — often adult children, sometimes a professional.
- Beneficiaries
- The people who benefit. That can be a fixed list, or a wide class ("my children and grandchildren") that trustees choose between.
- Trust deed or will trust
- The document setting the rules. A trust created in your will only springs into life when you die; a lifetime trust starts immediately.
The three types that matter for most families#
1. Property protection trust (also called a life interest trust)#
Written into the wills of a couple who own their home together. When the first partner dies, their share of the home goes into trust rather than to the survivor outright. The survivor keeps the right to live there for life; the underlying share is preserved for the children.
This is the workhorse of care-fee planning, because the share held in trust is not the survivor's to spend and is generally left out of their local-authority means test. How a property protection trust works in detail.
2. Discretionary trust#
Trustees decide who gets what, when, from a class of beneficiaries. Nobody has a fixed entitlement, which makes it the right tool where circumstances are unpredictable: a beneficiary who is disabled and receiving means-tested benefits, one going through a divorce, one who is bad with money, or grandchildren not yet born. It is flexible, but it carries the full relevant-property tax regime. More on discretionary trusts.
3. Bare trust#
The simplest kind. An asset is held for a named person who gets it absolutely at 18. Commonly used for gifts to grandchildren. Tax-wise the assets are treated as the beneficiary's from the start.
What trusts are genuinely good at#
- Second marriages. Providing for a new spouse for life while guaranteeing that your children from a first marriage eventually inherit. Leaving everything outright to a new spouse means their will controls where it ends up.
- Protecting a share of the home from a survivor's care means test — legitimately, through a will.
- Vulnerable beneficiaries. Keeping an inheritance from wiping out a disabled beneficiary's means-tested benefits.
- Divorce and creditors. A properly constituted discretionary trust holds assets that a beneficiary does not own outright.
- Control over timing. Money released at 25 rather than 18, or in stages.
What trusts are bad at — and the honest warnings#
Putting assets into most trusts during your lifetime is a chargeable transfer. Above the available nil-rate band you can face an immediate charge of up to 20%, then a charge of up to 6% every ten years, plus exit charges when assets leave. Trusts also pay income tax at the highest rates and get only half the normal capital gains allowance. For many families a well-drafted will costs less and achieves more.
If you move assets out of your name mainly to avoid care fees, the council can assess you as if you still owned them. There is no time limit on this — the "seven-year rule" people quote is an inheritance tax rule and has nothing to do with care assessments. In some circumstances the council can recover money directly from whoever received the asset.
Be very sceptical of anyone selling "asset protection trusts" door to door or at a free seminar, particularly schemes that put your whole home into a lifetime trust. They are frequently mis-sold, sometimes ineffective, and occasionally leave families worse off than doing nothing.
The costs nobody mentions in the sales pitch#
- Setting up: a will containing a trust typically runs £500–£2,000; a standalone lifetime trust usually more.
- Running it: trustees may need to register with HMRC's Trust Registration Service, file trust tax returns, and keep accounts. Professional trustees charge annually.
- Selling the house: when a home is part-owned by a trust, a future sale needs the trustees to act, which adds friction at exactly the moment a family does not want it.
Trust or will — which do you actually need?#
Most people need a well-written will. Some people need a will that contains a trust. Comparatively few need a lifetime trust.
| Situation | Usually the right tool |
|---|---|
| Married, one home, everything to each other then the children | Mirror wills |
| Couple who own a home, worried about care fees | Wills containing a property protection trust |
| Second marriage, children from a first | Life interest trust in the will |
| Disabled or vulnerable beneficiary | Discretionary or disabled person's trust |
| Estate comfortably over £1,000,000 | Professional advice — lifetime planning and gifting, possibly trusts |
| Simple estate under the allowances | A will. Nothing more. |
The full trusts vs wills comparison is here.
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Frequently asked questions
Does putting my house in a trust protect it from care fees?
Sometimes, and only if done for the right reasons at the right time. A property protection trust in a couple's wills is well-established: it protects the first-to-die's share from the survivor's means test, because that share was never the survivor's to spend. Transferring your home into a lifetime trust while you are healthy and living in it is a very different proposition — it is the classic deliberate deprivation scenario, and it can also create capital gains and inheritance tax problems. Get regulated advice before doing anything of the kind.
Do trusts have to be registered?
Most UK express trusts must be registered with HMRC's Trust Registration Service, whether or not they pay tax, with some exclusions. Registration must be kept up to date and there are penalties for failing to do it. This is one of the ongoing administrative burdens that rarely features in a sales pitch.
Can I be a trustee of my own trust?
For a lifetime trust, usually yes — but retaining too much control can undermine the point of the trust and, if you can still benefit from the assets, the "gift with reservation of benefit" rules may pull them straight back into your estate for inheritance tax. For a will trust the question does not arise: you appoint trustees to act after your death.
What tax does a trust pay?
It depends on the type. Relevant property trusts (most discretionary trusts) face up to 20% on the way in above the nil-rate band, up to 6% every ten years, and exit charges. Trust income is taxed at the top rates, and trustees get a reduced capital gains allowance. Bare trusts are taxed as the beneficiary's. Always check the specific type before assuming.
Is a trust private?
More private than a will, which becomes a public document once probate is granted. A trust deed is not published — though trustees must register with HMRC, and that register is accessible to law enforcement and to people with a legitimate interest.
This is general information, not legal advice. Everyone's situation is different — speak to a qualified adviser before acting. KeepTheLot is an independent information service covering England & Wales. We are not a law firm.