A family trust is a legal arrangement in which one or more people, the trustees, hold and manage assets for the benefit of others, the beneficiaries, who are usually members of the same family. It is a way to pass on property, money or investments while keeping some control over how and when they are used.
Families set up a trust to provide for children or grandchildren, to protect a vulnerable relative, to plan for a survivor remarrying, or as part of wider inheritance tax planning. This guide explains the main types, who does what, and how family trusts interact with tax and care costs in England and Wales. Figures are current as at August 2026 and are subject to change.
What is a family trust, in simple terms?
A trust separates legal ownership from benefit. When you put an asset into a family trust, the trustees become its legal owners on paper, but they must manage it for the beneficiaries and follow the rules set out in the trust deed. The person who creates the trust and puts assets into it is the settlor. "Family trust" is not a single legal category. It is a general term for a trust set up to hold assets for a family, and in practice it usually takes the form of a discretionary trust, a life interest trust, or a bare trust. It can be created during your lifetime, or written into your will so that it only takes effect on your death (a will trust).
Who is involved in a family trust?
Three roles sit at the heart of every trust. The same person can hold more than one role, and there can be several trustees and several beneficiaries.
| Role | What they do |
|---|---|
| Settlor | Creates the trust and transfers assets into it. They set the terms through the trust deed or their will. |
| Trustees | Hold legal title to the assets and manage them. They have legal duties to act in the beneficiaries' interests and follow the trust terms. |
| Beneficiaries | The people who can benefit from the trust, for example by receiving income, capital, or the use of a property. |
Trustees carry real legal responsibility. HMRC also requires most trusts to be registered on its online Trust Registration Service, with trustees keeping that record and the trust's tax affairs up to date (gov.uk, register a trust, as at August 2026, subject to change).
Types of family trust
The right structure depends on what the family is trying to achieve. These are the forms most commonly used.
| Type | How it works | Often used for |
|---|---|---|
| Discretionary trust | Trustees decide which beneficiaries receive what, and when, from a defined group. | Flexibility, protecting assets, providing for a group of relatives. |
| Life interest trust | One person (the life tenant) receives income or the use of an asset for life, then it passes to others. | Providing for a surviving spouse while protecting children's inheritance. |
| Bare trust | Assets are held for a named beneficiary who is absolutely entitled to them, often at 18. | Simple gifts to children or grandchildren. |
| Trust for a disabled or vulnerable person | Holds assets for someone who cannot manage them, sometimes with special tax treatment. | Providing for a relative who receives means-tested benefits or lacks capacity. |
General descriptions based on gov.uk, types of trust, as at August 2026, subject to change. The tax treatment of each type differs.
Why do families set up trusts?
- Control over timing. A trust can hold money for children until they are older, rather than handing over a large sum at 18.
- Protecting a beneficiary. Trustees can manage assets for someone who is vulnerable, or whose inheritance might otherwise affect means-tested benefits.
- Second marriages and blended families. A life interest trust can let a surviving partner live in a home for life while making sure it eventually passes to the deceased's own children.
- Keeping matters private. Unlike a will, which becomes a public document once probate is granted, the terms of a lifetime trust are generally not published.
Family trusts and inheritance tax
A common misunderstanding is that putting assets in trust makes them tax free. Often the opposite risk applies, because most family trusts fall into the "relevant property" regime, which has its own inheritance tax charges. The standard inheritance tax rate on estates is 40% above the available thresholds (gov.uk, as at August 2026, subject to change). Trusts are taxed differently, and the main charges are set out below.
| Charge | When it can apply | Rate |
|---|---|---|
| Entry (lifetime) charge | On assets transferred into a discretionary trust above the nil-rate band during your lifetime. | 20% on the excess (if trustees pay) |
| Ten-year anniversary charge | On the value of relevant property in the trust at each ten-year anniversary. | Up to 6% |
| Exit charge | When assets leave the trust between anniversaries. | Proportion of the ten-year rate |
Source: gov.uk, trusts and Inheritance Tax, as at August 2026, subject to change. The design intends the charge to be broadly comparable to one charge of 40% a generation.
The nil-rate band is £325,000 and the residence nil-rate band is up to £175,000. Both were already fixed until 5 April 2030, and at Budget 2025 the government confirmed they will stay at these levels for a further year, until 5 April 2031, the end of the 2030-31 tax year (gov.uk, Budget 2025 overview of tax legislation and rates, as at August 2026, subject to change). Whether a trust helps or hinders the tax position depends on the type of trust and the family's wider circumstances. You can read more in our guide to inheritance tax.
- Entry charge on a lifetime transfer into a discretionary trust above £325,000: 20% on the excess where trustees pay (gov.uk).
- Ten-year anniversary charge on relevant property: up to 6% (gov.uk).
- Nil-rate band £325,000; residence nil-rate band up to £175,000; fixed to 5 April 2031 as confirmed at Budget 2025 (gov.uk, Budget 2025).
- Most trusts must be registered with HMRC's Trust Registration Service (gov.uk).
Cost and registration
There is no single price for setting up a family trust. The cost depends on the complexity of the arrangement, the assets involved, and whether it is a lifetime trust or a will trust. Fees are agreed in writing before work begins, and the ongoing cost of running the trust forms part of the picture. Our pricing page sets out how we approach fees.
Registration is a separate step. Most UK trusts must be registered on HMRC's online Trust Registration Service, with trustees keeping that record current (gov.uk, as at August 2026, subject to change). This differs from registering a lasting power of attorney, which is registered with the Office of the Public Guardian for a fee of £92 per document (gov.uk, as at August 2026, subject to change).
Family trusts and care fees
Trusts are sometimes marketed as a way of planning for, limiting or mitigating the impact of care fees. This is an area to approach carefully. If a local authority decides that assets were placed in a trust mainly to avoid paying for care, it can treat this as a deliberate deprivation of assets and assess the person as if they still owned them, under the statutory care and support guidance (gov.uk, care and support statutory guidance, as at August 2026, subject to change). Timing and motive matter, and general marketing claims rarely reflect an individual position. Our guide to care home fees looks at this in more detail.
Limitations to keep in mind
- Trustees take on real legal duties and cannot treat trust assets as their own.
- Relevant property trusts carry their own inheritance tax charges, and trust income and gains have their own tax rules.
- Trusts add administration: registration, records, and sometimes tax returns.
- Once assets are placed in certain trusts, that decision can be difficult to unwind.
A trust is one tool among several, and for many families it works best considered alongside a will and the wider plan. Our estate planning guide shows how the parts fit together.
Trusts in Scotland and Northern Ireland
This guide describes the law of England and Wales. Trusts exist across the UK, but Scotland has its own body of trust and succession law with important differences, and Northern Ireland operates a separate but broadly similar system to England and Wales. If a trust touches more than one jurisdiction, the rules in each can differ and both apply to the arrangement.
Frequently asked questions
What is the main purpose of a family trust?
The main purpose is to let trustees hold and manage assets for family members, with control over how and when those assets are used. Families commonly use trusts to provide for children or a vulnerable relative, to plan for second marriages, and as part of wider inheritance tax planning. The right approach depends on the family's circumstances.
Does a family trust avoid inheritance tax?
Not automatically, and it can create its own charges. Most family trusts fall into the relevant property regime, where transfers above the £325,000 nil-rate band into a discretionary trust can face a 20% entry charge, and the trust can face a charge of up to 6% every ten years (gov.uk, as at August 2026, subject to change). Whether a trust helps depends on the type of trust and the wider position.
Who owns the assets in a family trust?
The trustees are the legal owners of the assets and hold them for the beneficiaries. The beneficiaries do not own the assets outright while they are in the trust, but they are the people the trustees must act for, following the terms of the trust deed or will.
Do I need to register a family trust?
Usually, yes. Most UK trusts must be registered on HMRC's online Trust Registration Service, and the trustees are responsible for keeping that record and the trust's tax affairs up to date (gov.uk, as at August 2026, subject to change). A small number of trusts are excluded from registration.
Can a family trust be used to avoid care fees?
It is not that simple. A local authority can treat assets placed in a trust mainly to avoid care costs as a deliberate deprivation of assets and assess the person as if they still held them (gov.uk, as at August 2026, subject to change). Timing and motive are central, so general claims about care fees should be treated with caution.
Is a family trust the same as a will trust?
A will trust is one kind of family trust, created within a will so that it takes effect on death. Other family trusts are set up during a person's lifetime through a trust deed. Both hold assets for beneficiaries, but the timing, tax treatment and practical steps can differ.