What Is a Family Trust? Trusts Explained

What is a family trust?

A family trust is a way of holding assets separately from the people who ultimately benefit from them. The settlor transfers assets into the trust, the trustees become the legal owners and manage them, and the beneficiaries have a right or a potential right to benefit. Because the trustees hold the assets rather than the beneficiaries, a trust can give more control over how and when money is passed on than an outright gift or a simple will can (gov.uk, trusts and taxes, as at June 2026).

Who is involved in a trust?

Every trust has three roles, and the same person can hold more than one of them. The settlor creates the trust and decides its terms, usually in a document called the trust deed. The trustees hold and manage the assets and must act in the beneficiaries' interests. The beneficiaries are the people who can benefit. Choosing reliable trustees matters, because they carry real legal duties.

Settlor. The person who puts assets into the trust and sets the rules for it.

Trustees. The legal owners who manage the assets and handle any tax the trust owes.

Beneficiaries. The people who can receive income, capital, or both, depending on the trust.

The main types of trust

There are several types of trust, and they work and are taxed differently. The right one depends on how much control you want to keep, who the beneficiaries are, and the tax position. The table below summarises the types most families come across in England and Wales. A discretionary trust is one of the most flexible, and we cover it in depth in our guide to discretionary trusts explained.

Type of trust	How it works	Often used for
Bare (absolute) trust	The beneficiary has an immediate, fixed right to the assets and can usually take them at 18 (16 in Scotland).	Simple gifts to a named child or grandchild.
Interest in possession trust	A beneficiary has a right to the income as it arises, but not necessarily to the capital.	Providing an income for a spouse while preserving capital for children.
Discretionary trust	Trustees decide which beneficiaries receive what, and when, within the class the settlor chose.	Flexibility, providing for a group of relatives, or a vulnerable beneficiary.
Accumulation trust	Trustees can hold income within the trust and add it to the capital rather than pay it out.	Building up funds for beneficiaries over time.
Mixed trust	A combination of more than one type, with each part taxed under its own rules.	More complex family or tax situations.
Settlor-interested trust	The settlor, or their spouse or civil partner, can benefit; special tax rules apply.	Situations where the settlor may need access, subject to advice.

Type of trust

How it works

Often used for

Bare (absolute) trust

The beneficiary has an immediate, fixed right to the assets and can usually take them at 18 (16 in Scotland).

Simple gifts to a named child or grandchild.

Interest in possession trust

A beneficiary has a right to the income as it arises, but not necessarily to the capital.

Providing an income for a spouse while preserving capital for children.

Discretionary trust

Trustees decide which beneficiaries receive what, and when, within the class the settlor chose.

Flexibility, providing for a group of relatives, or a vulnerable beneficiary.

Accumulation trust

Trustees can hold income within the trust and add it to the capital rather than pay it out.

Building up funds for beneficiaries over time.

Mixed trust

A combination of more than one type, with each part taxed under its own rules.

More complex family or tax situations.

Settlor-interested trust

The settlor, or their spouse or civil partner, can benefit; special tax rules apply.

Situations where the settlor may need access, subject to advice.

Source: gov.uk/trusts-taxes/types-of-trust, as at June 2026, subject to change. Trusts can also be created during life or by a will (a will trust).

Trusts and inheritance tax

Trusts do not remove inheritance tax, and in many cases they have their own tax rules. Putting assets into certain trusts can be a chargeable transfer, and many trusts face periodic charges. For inheritance tax, the standard rate is 40%, with a reduced rate of 36% where at least 10% of the net estate is left to charity (gov.uk, as at June 2026, subject to change). Transfers into some trusts can carry an entry charge, and many trusts also face charges at each ten-year anniversary and when assets leave (gov.uk, trusts and inheritance tax, as at June 2026).

Allowance or rate	Level (June 2026)
Nil-rate band	£325,000
Residence nil-rate band	Up to £175,000
Standard IHT rate	40%
Reduced rate (10%+ to charity)	36%
Taper threshold	£2,000,000

Allowance or rate

Level (June 2026)

Nil-rate band

£325,000

Residence nil-rate band

Up to £175,000

Standard IHT rate

40%

Reduced rate (10%+ to charity)

36%

Taper threshold

£2,000,000

Source: gov.uk/inheritance-tax. The nil-rate band, residence nil-rate band and taper threshold are frozen until the end of the 2030-31 tax year (5 April 2031) (gov.uk), subject to change. For the full picture, see our inheritance tax explained guide.

Lifetime trust or will trust?

Trusts can be created in two broad ways, and the choice affects both control and tax. A lifetime trust is set up while the settlor is alive, so it can start working straight away, but transfers into it may have immediate tax consequences. A will trust is written into a will and only comes into being on death. Many families choose a will trust when the main aim is to shape what happens after death, and consider a lifetime trust where they want something in place now.

A trust is a tool, not a product. The useful question is not whether trusts are good, but whether a particular trust suits a particular family.

Drawbacks and things to weigh up

Trusts are not free of cost or effort, and they are not right for everyone. Setting one up involves fees, trustees take on ongoing duties, and many trusts must be registered and may need their own tax returns. An unsuitable trust can cost more than it saves. These are among the reasons a trust is generally best considered with advice rather than set up from a template.

Set-up and ongoing administration costs, which vary with complexity.

Trustee duties and potential personal liability if things go wrong.

Registration requirements and, for many trusts, their own tax reporting.

Its own inheritance tax charges for certain trusts, rather than an exemption.

Trusts in Scotland and Northern Ireland

This guide describes the law of England and Wales. Trusts exist across the UK, but the surrounding rules differ. Scotland has its own trust and succession law, including legal rights that can give a spouse and children a fixed share of an estate, and a bare trust beneficiary can generally call for the assets at 16 rather than 18. Northern Ireland has a separate but broadly similar system to England and Wales. Where an estate or a trust touches more than one nation, it can be worth taking advice in each.

Frequently asked questions

What is a family trust in simple terms?

A family trust is an arrangement where trustees hold assets for the benefit of family members, following rules set by the person who created it. It separates legal ownership, held by the trustees, from the benefit, which goes to the beneficiaries. Families use trusts to keep some control over how and when money passes on. The right structure depends on your circumstances.

How does a family trust work?

The settlor transfers assets into the trust and sets out its terms, usually in a trust deed. The trustees become the legal owners and manage the assets, handle any tax the trust owes, and act in the beneficiaries' interests. Beneficiaries can receive income, capital, or both, depending on the type of trust. In England and Wales the rules vary by trust type.

Do family trusts avoid inheritance tax?

No, not automatically. A trust does not by itself place assets outside inheritance tax, and certain trusts have their own charges, including at each ten-year anniversary and when assets leave (gov.uk, as at June 2026). Gifts into trust can still be caught if the settlor dies within seven years. Because the rules are detailed, many people discuss this with a qualified professional.

What are the main types of trust?

Common types in England and Wales include bare trusts, interest in possession trusts, discretionary trusts, accumulation trusts, mixed trusts and settlor-interested trusts (gov.uk, as at June 2026). They differ in how much control trustees keep and how they are taxed. A discretionary trust tends to be among the most flexible, which is why families often ask about it first.

How much does it cost to set up a family trust?

Costs vary widely with the type of trust, the assets involved and the complexity, so a single figure is rarely meaningful. There are usually set-up fees and ongoing administration costs, and many trusts have their own reporting duties. Many people choose to ask for clear, agreed fees in writing before proceeding. Our guide on how to set up a trust looks at this in more detail.

Do I need a solicitor to set up a trust?

Not in every case, but trusts carry tax and legal consequences that are easy to get wrong, so many people take advice. A solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser can consider your full position before anything is put in place. Where the amounts or the family situation are complex, professional input is often worthwhile.

What is the difference between a trust and a will?

A will sets out who inherits after you die, while a trust holds assets and controls how and when beneficiaries benefit, and can operate during your lifetime as well. The two often work together, for example a will can create a trust on death. If you are weighing them up, our companion pieces on trusts and on what probate involves may help.

About Fairchild Oldfield

The Fairchild Oldfield team brings together estate planning, tax, independent financial advice and client care, working with families across England and Wales.

Fairchild Oldfield are estate planning specialists and will writers, not a firm of solicitors. This article is general information based on practical experience, not legal, tax or financial advice.

Important: This article is general information only and is not legal, tax or financial advice. Reading it does not create a professional relationship. It is based on the law of England and Wales, and other UK jurisdictions may differ. Figures and rules are current as at June 2026 and are subject to change. Before acting, many people choose to seek advice from a suitably qualified professional, such as a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser, who can consider your individual circumstances.

What Is a Family Trust? Trusts Explained