A family trust is a legal arrangement where trustees hold assets for the benefit of your family, following rules you set out. You, the settlor, transfer legal ownership to the trustees, who then manage those assets for your chosen beneficiaries. Families use trusts to control how wealth passes on and to provide for vulnerable relatives.
Most guides oversell it. A family trust can be genuinely useful, but rarely does the two things people most expect: cutting an inheritance tax bill and shielding a home from care fees.
What is a family trust?
A family trust is a private legal structure that separates who owns an asset from who benefits from it. The settlor puts assets in, the trustees become the legal owners and manage them, and the beneficiaries receive the benefit under the trust's terms set out in the deed. It is a general label, not one legal category: the rules and tax depend on the type you choose.
What are the main types of family trust?
Most family trusts fall into three types, and the difference is how much say the trustees have over who benefits and when, which drives the tax treatment. A bare trust fixes the beneficiary and their absolute entitlement. An interest in possession trust gives one person income or a home for life. A discretionary trust lets the trustees choose who receives what, and when, from a named group.
| Type | How it works | Often used for |
|---|---|---|
| Bare trust | The beneficiary is fixed and has an absolute right to the assets and income, usually from age 18 | Passing money to a specific child or grandchild |
| Interest in possession (life interest) trust | One beneficiary has the right to income or to live in a property for life; others inherit the capital afterwards | Providing for a spouse while protecting children's inheritance |
| Discretionary trust | Trustees decide which beneficiaries receive what, and when, from a chosen group | Flexibility, vulnerable beneficiaries, blended families |
A trust can be set up in your lifetime or by your will. Most lifetime and discretionary trusts sit in the "relevant property" regime, where the periodic charges below apply (gov.uk, trusts and taxes, as at August 2026, subject to change).
How does a family trust work in practice?
Setting up a family trust follows a clear sequence, and each step matters, because an error in the deed or the transfer can undo what you intend. You decide the purpose and type, choose trustees, draft the deed, transfer the assets in, register with HMRC, and then the trustees manage and account for the trust while it runs.
- Decide the purpose and type. Match what you want the trust to do to a bare, life interest or discretionary structure.
- Choose your trustees. Pick at least two people to manage the assets long term. They take on legal ownership and lasting duties.
- Draft the trust deed. The deed (or trust clauses in your will) names the settlor, trustees and beneficiaries and sets the rules trustees must follow.
- Transfer the assets in. Legal ownership of the property, cash or investments passes to the trustees. Until this happens, there is no trust.
- Register with HMRC. Most trusts must be registered on the Trust Registration Service, and many need their own tax returns (gov.uk, register a trust, as at August 2026).
- Trustees manage and account. They invest, make distributions, keep records and report tax while the trust runs.
Why do people set up a family trust?
The strongest reasons are about control, not tax. A trust lets you decide how and when assets reach people who may not be ready to manage money outright, provide for a vulnerable relative, keep wealth in the family through second marriages, and in many cases keep an inheritance clear of a beneficiary's divorce or creditors:
- Providing for a spouse for life while making sure children, including those from an earlier relationship, eventually inherit.
- Holding assets for children under 18, or for a vulnerable relative who cannot manage money.
- Keeping family arrangements private, unlike a will that becomes public after probate.
Does a family trust avoid inheritance tax?
Usually not, and often the opposite. Moving assets into a discretionary or other relevant property trust in your lifetime is a chargeable transfer: anything above your £325,000 nil-rate band can trigger an immediate 20% entry charge, then up to 6% of the excess every 10 years, plus an exit charge when assets leave (gov.uk, trusts and inheritance tax, as at August 2026, subject to change).
Trusts still have a place in tax planning, such as a life interest trust between spouses. But the reliefs are tightening: from 6 April 2026, 100% agricultural and business property relief is capped at a combined £2,500,000 per person, transferable between spouses, before dropping to 50% above that (gov.uk, changes to agricultural and business property relief, subject to change). Our inheritance tax guide has the full thresholds.
Can a family trust avoid care fees on the home?
This is the biggest misconception, and an expensive one. A family trust does not reliably keep your home clear of care fees. If a council decides you gave assets away deliberately to reduce your care costs, it can make a deliberate deprivation of assets assessment and treat you as though you still own them (gov.uk, Care and support statutory guidance, as at August 2026, subject to change).
No fixed time limit makes such a transfer safe: the council weighs your intentions and whether care was foreseeable. Schemes sold as a way to put the home beyond care fees often fail this test and leave families worse off. Trusts can play a part in planning for the impact of care fees, but only with honest advice. Our guide to care home fees explains the means test.
| Common expectation | The reality in England and Wales |
|---|---|
| A trust removes my home from inheritance tax | Reservation of benefit often keeps it taxable, and the residence nil-rate band may be lost |
| A trust puts my home beyond care fees | Councils can treat it as deliberate deprivation, with no safe time limit |
| A lifetime trust always saves tax | It can trigger a 20% entry charge, plus 10-year and exit charges |
| Once set up, a trust runs itself | Trustees have ongoing legal, tax and reporting duties |
How much does a family trust cost?
A lifetime family trust often costs roughly £1,000 to £5,000 to set up, and prices vary widely between providers. A trust written into your will usually costs less, as it forms part of drafting the will. The set-up fee is not the whole picture: trustees may face ongoing costs for administration, HMRC registration and tax returns, so weigh those against what the trust actually achieves. See how we approach fees on our pricing page.
Frequently asked questions
Can a family trust avoid care fees on my home?
Not reliably. If a council decides you moved your home into trust mainly to reduce care costs, it can treat this as deliberate deprivation of assets and assess you as if you still owned it. No time limit makes it safe.
Can I be a trustee of my own family trust?
Yes, in many cases you can be a trustee of a trust you create, and having at least two trustees is normal. Being both settlor and a beneficiary can trigger settlor-interested tax rules, so take care.
What is the difference between a will trust and a lifetime trust?
A lifetime trust is funded while you are alive, so assets pass to the trustees at once. A will trust is written into your will and takes effect on death. Lifetime trusts can trigger immediate tax charges that will trusts generally do not.