Trusts in estate planning let you hand assets to trustees to hold for people you choose, so you keep a say over who benefits and when. They can help with young or vulnerable beneficiaries, second marriages and some tax planning, but most trusts do not remove inheritance tax on their own, and some carry their own 20% entry charge. Choosing the right type matters more than simply having one.
The £325,000 nil-rate band behind most of this is frozen until 5 April 2031, and from 6 April 2027 unused pension funds are due to count towards your estate too, so the tax backdrop is tightening rather than easing (gov.uk, as at August 2026, subject to change). Figures below apply to England and Wales.
What is a trust, and who is involved?
A trust is a legal arrangement where the trustees hold assets for the beneficiaries under rules set by the person who created it, the settlor. The settlor gives up legal ownership; the trustees, who can include the settlor, hold legal title and must follow the trust deed and act in the beneficiaries' interests. The beneficiaries have a right to benefit, either fixed or at the trustees' discretion. A trust can start in your lifetime or be written into your will to take effect on death (gov.uk, as at August 2026, subject to change).
Which types of trust are used in estate planning?
The main trusts used in estate planning in England and Wales are bare trusts, interest in possession (life interest) trusts and discretionary trusts. They differ in how much say the beneficiary has, how flexible the trustees are, and how they are taxed. Each can be set up in your lifetime or created by your will.
| Type of trust | Who benefits, and how | Common estate-planning use | Broad tax position |
|---|---|---|---|
| Bare trust | One named beneficiary has an absolute right to the assets and income, usually at 18 | Holding money or investments for a child or grandchild | Treated as the beneficiary's own for tax; a lifetime gift into it is a potentially exempt transfer |
| Interest in possession (life interest) | One person receives the income or use for life; the capital passes to others afterwards | Letting a surviving spouse live in the home while protecting capital for children, often after a second marriage | Falls under the relevant property regime when set up in life; a will trust for a spouse is usually spouse-exempt |
| Discretionary trust | A class of beneficiaries; trustees decide who gets what and when | Flexibility for changing family needs, and for vulnerable beneficiaries | Relevant property regime: possible 20% entry charge, 10-year and exit charges |
Source: gov.uk types of trust, as at August 2026, subject to change. See our guide to writing a will for where will trusts fit.
Do trusts avoid inheritance tax?
Usually not on their own. Putting assets into most lifetime trusts is a chargeable transfer, and value above your £325,000 nil-rate band can trigger an immediate 20% inheritance tax charge, with more due if you die within seven years (gov.uk, as at August 2026, subject to change). Trusts can help shape when and how tax falls, but they rarely remove it.
A short example shows the trap. Put £525,000 into a discretionary trust in one go and £200,000 sits above the £325,000 band, so a 20% entry charge of £40,000 can fall due at once. Keeping each transfer within the nil-rate band, and waiting seven years before using it again, is what limits this.
One thing catches people out. If you put your home in trust but keep living there rent-free, HMRC usually treats it as still yours under the gift with reservation of benefit rules, so it stays in your estate. Trusts also do not sidestep the reformed reliefs: from 6 April 2026, agricultural and business property get 100% relief only up to a £2.5 million allowance that can be transferred between spouses, with 50% relief on value above it (gov.uk, updated 2025, subject to change). Our guide to reducing inheritance tax legally sets out the reliefs that matter most.
How are trusts taxed in the UK?
A trust can face three taxes: inheritance tax through the relevant property regime, income tax on what it earns, and capital gains tax when assets are sold. The exact treatment depends on the type, but discretionary and most lifetime interest in possession trusts follow the pattern below (gov.uk, as at August 2026, subject to change).
| Charge | Rate | When it applies |
|---|---|---|
| IHT entry charge | 20% | On value put into the trust above the £325,000 nil-rate band, during your lifetime |
| IHT 10-year charge | Up to 6% | On the trust's value above the nil-rate band at each 10-year anniversary |
| IHT exit charge | Proportion of the 6% | When capital leaves the trust between anniversaries |
| Income tax | Up to 45% (39.35% on dividends) | On income the trustees receive, above a small standard-rate band |
| Capital gains tax | 24% | On gains when trust assets are sold, after the trust's reduced annual exempt amount |
Source: gov.uk trusts and tax, as at August 2026, subject to change. Rates and allowances differ by trust type. Our inheritance tax guide explains the nil-rate band in full.
Can a trust reduce the impact of care fees on your home?
This is the most oversold use of trusts. Moving your home into a trust mainly to put it beyond a future care-fees assessment can be treated by the council as deliberate deprivation of assets, in which case they can assess you as if you still owned it, so the trust does not do what was promised (gov.uk Care Act statutory guidance, as at August 2026, subject to change).
There is no timing rule that makes this safe: a council can look back at when and why an asset was given away, so it can fail however long ago the trust was made. Firms selling "asset protection trusts" for this purpose rarely explain that risk. Trusts can still play a proper part in planning for and limiting the impact of care fees, for example a life interest trust that lets a surviving spouse stay in the home while preserving the other half-share for children. The point is a genuine estate-planning reason, not hiding assets. Our guide to care home fees sets out what a means test looks at.
How do you set up a trust?
Setting up a lifetime trust follows a set order, from deciding its purpose through to registering it with HMRC. Getting the type of trust and the choice of trustees right at the outset matters most, because both are difficult to change once the deed is signed and the assets have moved in. The six steps below show the usual route.
- Be clear on the purpose. Decide what problem the trust solves, such as providing for a child, protecting capital after a second marriage, or supporting a vulnerable beneficiary. The purpose drives the type.
- Choose the type of trust. Match the aim to a bare, interest in possession or discretionary trust, and decide whether it starts now or through your will. This is the step most worth taking advice on.
- Appoint trustees. Choose at least two people you trust to manage the assets for years, since they take on legal duties. You can be a trustee of a lifetime trust yourself.
- Draft the trust deed. A written deed sets out the trustees' powers, the beneficiaries and the rules. A will trust is written into the will instead.
- Transfer the assets. Move the money, investments or property into the trust so it legally holds them. For a lifetime trust this is the point any inheritance tax entry charge is measured.
- Register with the Trust Registration Service. Most trusts must be registered with HMRC, generally within 90 days of being set up, and kept up to date (gov.uk, as at August 2026, subject to change).
General steps only, not personal advice. The right structure depends on your circumstances. You can book a consultation to talk yours through.
How much does a trust cost?
What a trust costs depends on its type and complexity, and the figures below are common UK market ranges seen in 2026 rather than official rates. A will trust adds only a modest amount to a will, while a lifetime trust and its ongoing administration cost more. Weigh any figure against what the trust actually achieves for your family before committing.
| Type of cost | Typical range (2026 market) | What it covers |
|---|---|---|
| Will trust | Around £150 to £300 | Added to the cost of writing a will |
| Lifetime trust | From about £850, rising to £2,000 or more | Higher where property or several assets are involved |
| Ongoing trustee administration | Around £200 to £600 a year | Includes trust tax returns and record-keeping |
Indicative market ranges, not official figures or a quote. Our pricing page sets out our own fees.
Frequently asked questions
Do I need to register a trust with HMRC?
Most express trusts, including many will trusts once they are running, must be registered with HMRC's Trust Registration Service, usually within 90 days of being set up, and the details kept up to date. A few trusts are excluded, so it is worth checking the current list (gov.uk, as at August 2026, subject to change).
Who can be a trustee?
A trustee can be any adult you trust to manage the assets, including a family member, a friend, a professional, or yourself for a lifetime trust. Most trusts have at least two trustees. Trustees take on legal duties and must act in the beneficiaries' interests, so reliability and a long time horizon matter (gov.uk, as at August 2026, subject to change).
What is the difference between a will trust and a lifetime trust?
A will trust is written into your will and only takes effect when you die, so nothing happens to your assets while you are alive. A lifetime trust is set up now, moving assets out of your name immediately, which is what can trigger the 20% inheritance tax entry charge on value above the nil-rate band (gov.uk, as at August 2026, subject to change).
Do trusts pay income tax?
Yes, trustees usually pay income tax on income the trust receives. Discretionary trusts pay at up to 45%, or 39.35% on dividends, above a small standard-rate band, while bare trusts are taxed as the beneficiary's own income (gov.uk, as at August 2026, subject to change).
Is a trust better than a will for most people?
For most families a well-drafted will does the job, and a trust is added only where there is a specific need, such as a young or vulnerable beneficiary, a second marriage, or a business. Trusts bring cost, tax charges and administration, so they suit some situations and not others.