⚡ Quick answer: A trust is a legal arrangement where you transfer assets to be held by a trustee for beneficiaries' benefit. Set up a trust in your Will for just £149, or use a standalone trust for more control. Trusts protect assets, manage inheritance, and provide tax efficiency.
What Is a Trust Fund?
A trust is a legal relationship where:
- Settlor (you): Create the trust and transfer assets into it
- Trustee: Holds and manages the assets legally (can be you, a professional, or a bank)
- Beneficiaries: Receive the benefit of the assets (income, access, or inheritance)
The trustee must manage assets in the beneficiaries' best interests, following the trust deed (the document that sets out the rules).
Why Set Up a Trust?
You might set up a trust if:
- You have children under 18: Can't inherit directly — need a trust to hold assets until they're old enough
- You have a blended family: Want to protect your children's inheritance while providing for a new spouse
- You want to avoid inheritance disputes: Trusts provide clear rules about asset distribution
- You have vulnerable dependants: Want control over how they access money (they can't squander it)
- You own a business: Protect business assets and pass them to the next generation
- You want tax efficiency: Some trusts can reduce Inheritance Tax liability
- You have significant assets: Professional management and protection of wealth
Types of Trusts in the UK
1. Bare Trust (Simple Trust)
How it works: Beneficiary has absolute right to assets — the trustee simply holds them legally, but the beneficiary owns them beneficially.
Best for: Holding assets in a child's name (parents hold legal title, child owns the asset). Often used for small investments in children's names.
Tax: Beneficiary pays income tax and capital gains tax on trust income (as if they owned the asset directly).
Cost: Low — can be set up informally or in your Will.
2. Fixed Interest Trust
How it works: Assets are held for beneficiaries with fixed entitlements (e.g., "20% to my daughter, 80% to my son").
Best for: Simple distributions where you want clear, predetermined splits.
Tax: Each beneficiary pays tax on their share of trust income.
Cost: £200–£500 to set up in a Will; £2,000–£4,000 as a separate trust.
3. Discretionary Trust
How it works: Trustee has discretion to distribute income and capital to any of several beneficiaries, depending on circumstances (income needs, emergencies, education, etc.).
Best for: Complex families, vulnerable beneficiaries, or when you want flexibility over time (circumstances change).
Tax: Higher tax rate — trustees pay a special "trust rate" of tax (currently 45% on income, capital gains tax).
Cost: £2,000–£5,000+ to set up professionally; £1,000–£2,000 annual administration.
4. Life Interest Trust (Reversionary Trust)
How it works: One person (usually spouse) has "life interest" — receives income and/or use of assets during their lifetime. On their death, assets pass to remainder beneficiaries (usually children).
Best for: Blended families — protects new spouse but ensures children eventually inherit.
Example: "My spouse can live in the house and receive income from investments during their life. On their death, the house and investments pass to my children."
Tax: Can be tax efficient — spouse pays income tax on income generated; children receive assets outside of spouse's estate.
Cost: £300–£600 in a Will; £3,000–£6,000 as standalone trust.
5. Charitable Trust
How it works: Assets held for charitable purposes — benefiting a registered charity.
Best for: If you want to leave money to a good cause while getting tax relief.
Tax: No Inheritance Tax if assets go to a registered charity. Income tax relief too.
Cost: Setup and administration by a professional charity.
How to Set Up a Trust
Option 1: Trust in Your Will (Testamentary Trust) — Most Common
How it works: Include trust provisions in your Will. When you die, your executor sets up the trust and transfers assets to a trustee.
Pros: Simple, inexpensive (£149–£300), no separate legal documents, no ongoing fees until your death.
Cons: Trust doesn't take effect until you die. If you need control over assets now, use an inter-vivos trust instead.
Steps:
- Decide trust type and beneficiaries
- Name a trustee (solicitor, bank, family member, or professional trustee)
- Draft trust provisions in your Will (or use a professional)
- Sign Will with witnesses
- Trust activates on your death
Cost: Clear Legacy: £149 (included in Will drafting). Solicitor: £300–£600.
Option 2: Inter-Vivos Trust (Living Trust)
How it works: Create and fund the trust now while you're alive. Assets transfer immediately to the trustee.
Pros: Takes effect immediately, gives you control now, can be amended if circumstances change, professional management of assets.
Cons: More expensive setup, ongoing administration costs, you lose direct control of assets.
Steps:
- Consult a solicitor or trust specialist
- Draft a comprehensive trust deed (150–300 pages for discretionary trusts)
- Transfer assets into the trust (property deeds, share certificates, bank accounts)
- Register the trust with HMRC
- Trustee manages assets ongoing
Cost: £2,500–£7,500 setup; £1,000–£3,000 annual administration.
Who Should Be the Trustee?
| Trustee option | Pros | Cons |
|---|---|---|
| Family member (adult child, spouse, sibling) | Free; trusted; knows family circumstances | No professional experience; conflict of interest if also a beneficiary; may be unwilling or unable later |
| Friend or colleague | Trusted; may volunteer services | Similar issues to family; friendship may break down |
| Solicitor or accountant | Professional; experienced; impartial; accountable | Cost (£1,000–£3,000/year); less personal relationship |
| Bank trust department | Professional; stable; large assets handled well | Expensive (1–2% of assets per year); may not understand personal family nuances |
| Professional trustee company | Specialist in trust law; proper insurance; impartial | Cost (£1,500–£5,000/year); can feel impersonal |
Tip: You can name co-trustees (e.g., spouse + solicitor) to balance personal and professional input.
Tax Implications of Trusts
Trusts have specific tax rules — consult an accountant for your situation:
| Tax type | Impact on trusts |
|---|---|
| Inheritance Tax | Assets placed in some trusts may fall outside your estate for IHT (tax saving). Others are "relevant property" and pay tax every 10 years. |
| Income Tax | Trustees pay income tax on trust income. Discretionary trusts pay a higher "trust rate" (currently 45%). |
| Capital Gains Tax | Trustees pay CGT on gains (28% – higher than individuals). Annual exemption applies. |
| Stamp Duty | May apply when transferring property into a trust (though there are some exemptions). |
Common Misconceptions About Trusts
"A trust costs thousands of pounds to set up"
Reality: A simple trust in your Will costs £149 with Clear Legacy. Standalone trusts are more expensive (£2,500–£7,500), but worth it if you have significant assets or complex family situations.
"Once in a trust, my child can't access the money"
Reality: Depends on the trust. Life interest trusts give your spouse access to income. Discretionary trusts give trustees flexibility to help beneficiaries in need. Bare trusts give beneficiaries full access to their share.
"A trust avoids all inheritance tax"
Reality: Some trusts reduce IHT, but not all. Discretionary trusts still pay IHT on assets over the nil-rate band. Consult an accountant for specific planning.
Cost Breakdown: Setting Up a Trust
| Trust type | Setup cost | Annual cost | Best for |
|---|---|---|---|
| Trust in Will (simple) | £149–£300 | None until death | Most people; straightforward situations |
| Life Interest Trust (in Will) | £300–£500 | None until death | Blended families; protecting spouse |
| Discretionary Trust (in Will) | £400–£800 | £500–£1,000 annual admin | Complex families; vulnerable beneficiaries |
| Inter-Vivos Discretionary Trust | £3,000–£7,500 | £1,500–£3,000 | Significant assets; business succession; tax planning |
| Professional trust company setup | £5,000–£15,000 | £2,000–£5,000 | Large estates; complex ongoing management |
Set Up a Trust Today
Include a trust in your Will for just £149. Whether protecting your children, your spouse, or managing a complex family situation, a professionally drafted trust ensures your wishes are followed.
Create a Will with Trust →Frequently Asked Questions
Can I change a trust after it's been set up?
It depends. Trusts in your Will can only be changed before you die (by making a new Will). Inter-vivos trusts can sometimes be amended by deed if all beneficiaries and trustees agree — consult a solicitor.
What happens if a trustee dies or resigns?
The trust deed should name replacement trustees. If no one is willing or able, a court can appoint a trustee. This is why naming co-trustees or professional trustees is helpful.
Do beneficiaries pay tax on distributions from a trust?
It depends on the trust type. Bare trust beneficiaries pay tax as if they owned the asset. Discretionary trust beneficiaries may pay additional tax on distributions (depending on trust income). Consult an accountant.
Can a trust reduce my inheritance tax?
Potentially, yes. Some trusts are more tax efficient than others. For substantial estates, proper trust planning can save thousands in IHT. Consult a tax specialist or accountant.
What if a beneficiary has a disability or special needs?
A discretionary trust or special needs trust is ideal — allows the trustee to use funds flexibly for the beneficiary's benefit without affecting their benefits eligibility. Consult a solicitor specialising in disability law.