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Trusts explained simply: when they help, when they don’t, and what families should know

4 Jun 26 Emily Malone

Trusts have a reputation for sounding more complicated than they need to be.

At the simplest level, a trust is a legal way of looking after assets for someone else’s benefit. One person puts assets in, other people manage them, and the chosen beneficiaries benefit from them in time. The government’s guidance on trusts and taxes describes a trust as a way of managing assets such as money, investments, land or buildings for people.

That sounds straightforward enough on paper. But in real life, trusts can bring up bigger questions around tax, control, access, flexibility and responsibility. And that’s usually where families start to feel unsure.

So the better question isn’t “Should we set up a trust?” It’s “What are we trying to protect, support, or make easier?”

What is a trust, in simple terms?

A trust is a structure.

The settlor is the person who puts assets into it.

The trustees are the people responsible for managing those assets.

The beneficiaries are the people who may benefit from them.

That’s the basic framework set out in the government’s overview of how trusts work.

Where things get more complex is that there isn’t just one kind of trust. The government’s guide to types of trust lists several, including bare trusts, interest in possession trusts, discretionary trusts and accumulation trusts. And they’re taxed differently. That matters because people often talk about “a trust” as if it’s one thing, when it can be many different things.

For example, a trust for a child who should inherit at 18 is very different from a discretionary trust designed to give trustees flexibility over when and how money is distributed.

Why do families use trusts?

Usually, it comes down to one or more of these reasons:

to control how and when assets are passed on
to protect younger or more vulnerable beneficiaries
to create structure around family wealth
to deal with more complex family situations
to manage inheritance tax exposure in some circumstances

Sometimes that makes perfect sense.

For example, a trust can be useful where a beneficiary is too young to manage money, where someone wants trustees to make decisions over time rather than hand assets over outright, or where a vulnerable person may benefit from special trust treatment. The government has separate guidance on trusts for vulnerable people, which is worth knowing about if that’s part of the picture.

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When trusts can help

When you want control over timing

One of the clearest reasons to use a trust is when you don’t want assets to pass onto the beneficiary outright and straight away.

That might be because the beneficiary is your 3 year old granddaughter. Or because you’d just rather money was released gradually. Or it might be because you want trustees to have discretion depending on what happens later.

That’s often where trusts earn their keep; they can create useful structure where an outright gift would feel too blunt.

When family circumstances are more complex

Blended families, second marriages, concerns about future remarriage, or unequal levels of financial maturity between children can all make simple gifting feel too exposed.

A trust can sometimes help create a buffer between the asset and the uncertainty around it.

That doesn’t remove complexity. In a sense, it formalises it. But sometimes that’s exactly what’s needed.

When someone is vulnerable or needs protection

This is one of the strongest use cases.

If a beneficiary is vulnerable or unlikely to be well served by receiving assets outright, a trust can offer a more careful framework. As the government explains in its guidance on trusts for vulnerable people, special tax treatment may apply in some cases, which is one reason specialist advice matters here.

When you’re planning across generations

Some families aren’t just thinking about one transfer. They’re thinking about how wealth should move over time.

In those cases, a trust might be part of a wider plan rather than a standalone decision.

That’s especially true where the goal is to balance support, control and fairness, rather than simply move assets as fast as possible. We come back to that broader planning question in our blog post Should you gift wealth while living or leave it in your will?.

When trusts don’t help

When the real issue is simpler than the structure

It’s worth knowing when a straightforward gift, a well-drafted will, or a clearer expression of wishes would do the job just fine.

Because trusts come with ongoing responsibilities. Trustees may need to deal with administration, tax returns and, in some cases, trust registration. The government explains this in its guidance on when you must register a trust and trustees’ tax responsibilities.

So if the underlying need is simple, the structure can become heavier than the problem.

When people assume a trust automatically saves tax

This is one of the biggest misunderstandings: a trust is not a shortcut to easy tax savings.

Some trusts can trigger inheritance tax charges when assets go in, while others may face ongoing charges or tax reporting. The government’s guidance on trusts and Inheritance Tax explains that Inheritance Tax can apply to assets transferred into or out of trust and, for relevant property trusts, on certain 10-year anniversaries.

Trust income is also taxed under its own rules. The government’s guide to trusts and Income Tax and trusts and Capital Gains Tax is useful here if you want to understand the moving parts.

So yes, trusts can be part of tax planning. But they’re not automatically tax-efficient.

When the family wants simplicity and easy access

Trusts can create useful control. But control cuts both ways.

If your family wants flexibility, low admin and easy access to funds, a trust may feel a little too restrictive for you. And if trustees, beneficiaries and the person creating the trust aren’t aligned on the purpose, that tension tends to get worse rather than better over time.

The big thing families often miss

The legal structure is only half the story. The other half is the human bit.

Who are the trustees?
Do they understand what’s expected of them?
Will the beneficiaries feel looked after or controlled?

Is the aim protection, fairness, tax planning, or something else entirely?

These questions matter because a trust can be technically sound and still not feel quite right in real life.

A simple example

Let’s say grandparents want to leave money for two grandchildren.

If the aim is simply to pass on assets and the grandchildren are likely to be financially capable adults by the time they inherit, a straightforward will or direct gift may be enough.

But if the grandparents want the money held until a certain age, or want trustees to have some control over how and when it’s used, a trust may be more appropriate.

Same family. Same wealth. Different structure. The difference comes down to what they’re trying to achieve.

That’s usually the thread running through genuinely good trust planning. The answer starts with the purpose, not the product.

What about tax?

Trust taxation depends on the type of trust. The government says different types of trust are taxed differently, and trust tax can involve Income Tax, Capital Gains Tax and Inheritance Tax depending on the circumstances.

A few practical points matter most:

some trusts may face an inheritance tax charge when assets are transferred in
some relevant property trusts can face 10-yearly and exit charges
trustees may have to register the trust with HMRC
trustees may need to file tax returns and manage ongoing reporting

That just means trusts should be used deliberately, with a clear understanding of the admin and tax consequences. The government’s guidance on registering a trust and trustees’ tax responsibilities makes that clear.

What families should know before setting one up

Before using a trust, it’s worth asking:

What problem are we solving?
Is a trust the simplest way to solve it?
Who will act as trustee?
Will those trustees be capable and willing?
Do we understand the reporting and tax responsibilities?
Are we doing this for control, protection, tax planning, or all three?
Would a will, gift or other structure be more proportionate?

These questions don’t make the decision less emotional, but they do make it more honest.

We touch on some of the wider inheritance tax and gifting context in PETs vs CLTs: What You Should Know About Lifetime Gifts And Inheritance Tax and How couples without children can pass on wealth tax-free.

The bottom line

Trusts can help where control, protection or long-term family planning matter more than simplicity. They can be especially useful where beneficiaries are young, vulnerable, or where family circumstances are more complex. But they also come with tax rules, trustee duties and administration that shouldn’t be underestimated.

The government’s current guidance makes clear that trusts are taxed differently by type, may need registering, and can face inheritance tax charges when assets go in, out, or hit 10-year anniversaries.

So the real question usually is whether a trust is the right tool for the job.

That might mean looking at the tax position, thinking though who needs access and when, or making sure the structure gives you the right balance of control, flexibility, and protection.

Used well, a trust can be a great way to pass on wealth with purpose. The key is making sure it’s set up with clear intentions from the start.

Thinking of opening a trust?

Our role is to help you understand how a trust could work for your family, and how to shape it around the people and assets you care about.

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FAQs

What is a trust in simple terms?

A trust is a legal arrangement where one person puts assets aside, trustees manage them, and beneficiaries benefit from them. The government’s guide to trusts and taxes describes trusts as a way of managing assets such as money, investments, land or buildings for people.

Do trusts avoid inheritance tax?

Not automatically. The government’s guidance on trusts and Inheritance Tax explains that Inheritance Tax can apply when assets are transferred into trust, when assets leave certain trusts, and at 10-year anniversaries for relevant property trusts.

Are trusts only for very wealthy families?

No. They can be useful in a range of family situations, especially where control, protection or complexity matter. But they aren’t always necessary, and they’re not automatically the best answer just because wealth is involved.

Do trusts have to be registered?

Many do. The government says trusts usually need to be registered with HMRC in certain circumstances, and its guidance on registering a trust explains when that applies.

Do trustees have tax responsibilities?

Yes. The government’s guide to trustees’ tax responsibilities explains that trustees may need to report income and gains, file trust and estate tax returns, and manage the trust’s tax affairs.

Sources

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