Do I Need a Trust?

Trusts have an image problem in both directions. To some people they sound like something only the very wealthy need; to others, like a magic box that makes tax and care fees disappear. Neither is true. A trust is simply a tool, genuinely valuable in the right situations, expensive and pointless in the wrong ones, and occasionally dangerous when sold by the wrong people. This factsheet explains what trusts are, when they earn their place, and the warning signs that you are being sold one rather than advised to have one.

What a trust is, in plain English

A trust is an arrangement where one set of people, the trustees, legally hold assets (money, investments, property) not for themselves, but for the benefit of others, the beneficiaries, according to rules set by the person who created the trust (the settlor).

That is all it is: a separation between controlling an asset and benefiting from it, and that separation is the entire source of a trust's power. It means a child can benefit from money without being handed it at 18. It means a widow can live in a house for life without owning it outright, so it cannot later drift to a new partner.

The main types families meet

Will trusts. Any trust created inside your Will, taking effect only when you die. Most protective family planning uses Will trusts; they cost nothing during your lifetime because they do not exist yet.

Life interest trusts (also called interest in possession trusts). One person, the life tenant, typically a surviving spouse or partner, has the right to occupy a property or receive income for life, with the capital preserved for others, usually children. The workhorse of blended-family planning and survivor protection.

Discretionary trusts. The trustees have genuine discretion over which of a defined group of beneficiaries receives what, and when; nobody has an automatic entitlement. That flexibility suits uncertainty: a beneficiary with addiction or debt problems, an unstable marriage, means-tested benefits, or simply a future you cannot predict. A confidential letter of wishes usually guides the trustees.

Bare trusts. The simplest kind: trustees hold assets for a named beneficiary who is absolutely entitled to them, typically a child who takes full control at 18. Simple, but with no protection beyond that age.

Lifetime trusts. Trusts you create and fund while alive (sometimes marketed as "family protection trusts" or "asset protection trusts"). These have legitimate uses, but they are also the vehicle of choice for high-pressure sales schemes, particularly around care fees, and carry tax and registration consequences from day one.

What trusts genuinely do well

Protecting an inheritance from a beneficiary's divorce or bankruptcy. Assets in a well-drafted trust are generally not the beneficiary's property, so they are far better sheltered from a divorce settlement or creditors than an outright gift.

Protecting children in blended families, and guarding against remarriage. The classic problem: you leave everything to your spouse, who later remarries or rewrites their Will, and your children from your first relationship receive nothing. A life interest trust lets the survivor enjoy the assets for life while the capital ultimately reaches your children.

Providing for vulnerable beneficiaries. A disabled child, an adult who cannot manage money, someone on means-tested benefits, a discretionary or disabled person's trust can support them for life without a lump sum that harms them or removes their benefits.

Controlling timing. Holding inheritances to 21 or 25, releasing funds for education or a house deposit, drip-feeding rather than dumping. Eighteen-year-olds and six-figure sums are rarely a good combination.

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What trusts do NOT do

They are not a magic tax escape. Putting assets into trust does not make Inheritance Tax vanish: lifetime gifts into trust above the nil rate band can trigger an immediate IHT charge, and many trusts face their own ongoing tax regime. Trusts can play a role in sensible, properly advised IHT planning (see our Inheritance Tax Mitigation factsheet), but anyone telling you a trust simply "takes assets out of tax" is selling, not advising.

They are not a reliable way to dodge care fees. This is the big one. Schemes putting your home into a lifetime trust "so the council can't touch it" are widely marketed and deeply problematic. If a local authority concludes you gave away an asset with avoiding care charges as a significant motive, it can treat you as still owning it, deliberate deprivation of assets, and there is no time limit on how far back it can look. The "seven-year rule" belongs to Inheritance Tax; it has nothing to do with care-fee assessments. Families who paid handsomely for such schemes can end up with fees still assessed, a house locked inside a trust nobody understands, and ongoing costs on top.

They do not remove the need for a Will, Lasting Powers of Attorney or proper advice. A trust is one component, never the whole plan. See our Lasting Powers of Attorney factsheet for the document that protects you if you lose capacity.

What trustees take on

Being a trustee is a real legal role, not an honorary title. Trustees must act in the beneficiaries' best interests, follow the trust's terms, invest prudently, keep accounts and file any tax returns required.

Most trusts must also be registered with HMRC's Trust Registration Service (the online register of trusts that HMRC maintains), generally within 90 days of the trust being created or becoming registrable, and kept up to date. Penalties for deliberate non-compliance can reach £5,000. Many families who set up lifetime trusts through sales-led firms were never told this. Our Trust Administration factsheet covers trustees' duties in full.

A worked example

Imagine Margaret, a widow of 74 with a £400,000 house and two adult children, one settled, one in a marriage heading for divorce. A cold-caller offers a "family protection trust" to "protect the house from care fees and the taxman." Margaret instead takes proper advice. The care-fee promise, she learns, would likely fail as deliberate deprivation, and her allowances mean no IHT is due anyway. What she actually needs is simpler: a Will leaving each child's share into a protective trust, so her son's inheritance does not land in the middle of a divorce settlement, plus Lasting Powers of Attorney. She pays for what works, not what was being sold. This is a hypothetical example for illustration only.

Genuine recommendation or sales pitch?

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Common mistakes

Buying a trust to solve a problem you do not have. Many estates need no trust at all. A review of your actual circumstances comes first; the structure second, if at all.

Putting the family home into a lifetime trust to avoid care fees. Deliberate deprivation rules have no time limit, and these schemes are routinely challenged. The cost, complexity and risk usually outweigh any benefit.

Assuming a trust avoids Inheritance Tax automatically. It often does not, and lifetime transfers into trust can create immediate tax charges if done badly.

Forgetting the Trust Registration Service. Trustees who fail to register with HMRC within the deadline risk penalties, and many never knew the obligation existed.

Appointing trustees who cannot do the job. Trusteeship can last decades. Choose people with the competence to see it through, or include a professional.

Never reviewing the trust. Tax rules, families and the law all change. A trust created in 2010 may be doing nothing useful, or doing harm, in 2026.

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This factsheet is general information for England and Wales, not legal, tax or financial advice. Last reviewed: June 2026.