What is a trust?
A trust is an arrangement where one group of people holds something for the benefit of another. Everything else about trusts is detail built on that one idea.
The short answer
- A trust splits legal ownership from benefit. Trustees own the assets; beneficiaries benefit from them.
- Three roles: the settlor creates it, the trustees manage it, the beneficiaries benefit.
- A trust can be created in a will (taking effect on death) or during your lifetime.
- Trustees have real legal duties and can be personally liable for getting it wrong.
- Most UK trusts must be registered with HMRC's Trust Registration Service, whether or not they pay tax.
What's on this page
The idea in one picture#
You own a house. You want your children to end up with it, but you want your partner to live in it first. Handing it to either one of them outright cannot achieve both.
So you separate the two things. Trustees hold the legal title. Your partner has the right to live there. Your children are entitled to it eventually. Nobody has to trust anybody else's future intentions — the arrangement itself enforces it.
That is a trust. Everything else is variations on that theme.
The three roles#
- Settlor
- The person who puts assets in and sets the rules. If the trust is in your will, that is you.
- Trustees
- The legal owners. They must act in the beneficiaries' best interests, follow the trust document, keep proper accounts, act impartially between beneficiaries, and invest prudently. They can be held personally liable for breaches. Usually two to four people; you can appoint professionals, who charge.
- Beneficiaries
- The people who benefit. Either fixed ("my son Tom") or a discretionary class ("my children and grandchildren"), where trustees decide who gets what and when.
How trusts get created#
- In a will. The trust does not exist until you die. Costs nothing to run in the meantime. This is the route used for property protection trusts.
- During your lifetime. A trust deed signed now, with assets transferred in immediately. Bigger step, immediate tax consequences.
- By statute. Some trusts arise automatically — for example, where a beneficiary under 18 inherits.
What trustees actually have to do#
Being a trustee is not honorary. The duties include:
- Reading and following the trust document;
- Acting in the beneficiaries' best interests, not their own;
- Investing prudently and taking advice where appropriate;
- Keeping accounts and records;
- Registering the trust with HMRC where required, and keeping the record current;
- Filing tax returns if the trust has income or gains;
- Acting impartially between beneficiaries with competing interests.
Choose people who will actually do this, and tell them before you name them.
What it costs#
- Will trust: £500–£2,000 for a pair of wills including trust provisions. Nothing to run until the first death.
- Lifetime trust: usually more to set up, plus ongoing administration.
- Tax: relevant property trusts can face entry charges of up to 20% above the nil-rate band, ten-yearly charges of up to 6%, and exit charges. Trust income is taxed at the highest rates.
- Professional trustees: annual fees, often percentage-based.
When an ordinary family genuinely needs one#
- Care-fee protection for a couple who own a home — property protection trust;
- Second marriages, to secure children's eventual inheritance;
- A disabled or vulnerable beneficiary whose means-tested benefits an inheritance would disrupt;
- Children who should not receive a lump sum at 18;
- A beneficiary with debt, addiction or divorce problems.
If none of those apply, you probably do not need a trust. Compare trusts and wills.
Trusts are sold hard — sometimes at free seminars, sometimes on the doorstep, often with a promise that your home will be "safe from the council". Be sceptical. A trust that solves a problem you do not have is an expensive ornament with annual paperwork attached.
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Frequently asked questions
Do I lose control of assets I put into a trust?
For a lifetime trust, yes — that is the point, and retaining too much control undermines the arrangement. If you can still benefit from the assets, the gift with reservation of benefit rules may pull them back into your estate for inheritance tax anyway. For a will trust the question does not arise: you keep everything during your life.
Who can be a trustee?
Any adult with capacity, including a beneficiary — though appointing a beneficiary as sole trustee creates an obvious conflict. Most people appoint two to four: family members who understand the intention, sometimes with a professional alongside. Always name replacements.
Do all trusts have to be registered?
Most UK express trusts must be registered with HMRC's Trust Registration Service, whether or not there is tax to pay, with a limited set of exclusions. Registration must be kept up to date and penalties apply for failure. Check the current requirements on GOV.UK before assuming a trust is exempt.
Can a trust be ended?
Sometimes. Some trusts have a defined end point. Others can be wound up early if the trust deed allows it, or if all beneficiaries are adults with capacity and agree (the rule in Saunders v Vautier). Winding up can trigger exit charges and capital gains, so it is a decision to take with advice.
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.
Part of our guide to trusts.