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What Is a Trust? (And How Do They Work in Wills?)

· 25 min

Note: The following scenario is fictional and used for illustration.

When Emma died unexpectedly at 39, she left behind £280,000 in savings and a property worth £420,000. Her two children, aged 7 and 9, inherited everything equally. Because Emma's will left the assets directly to her children without a trust, the entire £700,000 had to be managed by the Court of Protection until the children turned 18—costing the estate over £8,000 in legal fees and court oversight.

Meanwhile, Emma's sister (named as guardian) had no access to the funds to buy a larger home to accommodate the children, forcing them to share a single bedroom for six years. A simple bare trust in Emma's will could have given her sister immediate access to manage the inheritance for the children's benefit, avoiding court involvement entirely and ensuring the money was used for their care and education.

According to government statistics, 733,000 trusts are now registered in the UK, with will trusts being the most common type for everyday estate planning—not just for the wealthy.

This article will explain exactly what trusts are, how they work in wills, the main types you should know about, and when you should consider using one.

Table of Contents

What Is a Trust? (The Simple Explanation)

A trust is a legal arrangement where you give assets to trustees to manage on behalf of beneficiaries according to your instructions. Think of it like giving money to a responsible friend with specific instructions: "Use this to pay for my daughter's university fees when she turns 18."

Every trust involves three parties:

The settlor (you) - the person who creates the trust and provides the assets

The trustees - the people you appoint to manage the assets according to your instructions

The beneficiaries - the people who benefit from the trust assets

The key distinction between a trust and a direct gift is control and timing. A direct gift means full ownership immediately—the beneficiary can do whatever they want with the assets. A trust means conditional or managed ownership—the beneficiary receives assets only when your specified conditions are met.

For example, David could leave £50,000 directly to his 16-year-old son (direct gift), giving him full access at age 18. Or David could leave £50,000 in trust for his son until age 25 (trust), with trustees managing the money until then and perhaps releasing funds earlier for university or a first home deposit.

According to government statistics, 733,000 trusts are now registered with HMRC's Trust Registration Service. Most trusts in UK wills are for family estate planning, not offshore tax avoidance or complicated financial arrangements.

Trusts give you control over your estate even after death, ensuring your assets are used according to your wishes rather than simply handed over with no strings attached.

How Trusts Work in Wills: The Basic Mechanism

When you include trust provisions in your will, the trust doesn't exist during your lifetime—it's created only when you die. This is called a testamentary trust or will trust. Here's how it works step by step:

Step 1: You include trust provisions in your will. Either with DIY guidance, online services like WUHLD, or through a solicitor, you specify which assets go into trust, who the trustees are, who the beneficiaries are, and what conditions apply.

Step 2: When you die, your will goes through probate as normal. The executor gathers your assets, pays debts and taxes, and prepares to distribute your estate.

Step 3: Instead of assets passing directly to beneficiaries, they transfer to the trustees. The trustees become the legal owners of the trust assets, but they don't own them for their own benefit—they hold them on behalf of the beneficiaries.

Step 4: Trustees manage the assets according to your instructions. This might mean investing the money, maintaining property, distributing income to beneficiaries, or holding capital until a specified time.

Step 5: At the specified time or condition, beneficiaries receive the assets. This could be when they turn 18, when they graduate, when they marry, or any other condition you've set—or the trustees might have discretion to decide when to distribute assets.

Sarah sets up a discretionary trust in her will for her three children, aged 8, 12, and 15. When she dies, her £200,000 estate goes to three trustees: her brother, best friend, and solicitor. They invest the money and distribute funds based on need—university fees for one child, a first home deposit for another, business start-up capital for the third. When the youngest turns 25, any remaining funds are split equally among the three children.

The legal basis for trusts in wills comes from the Wills Act 1837 and general trust law. Trusts must also comply with Trust Registration Service requirements, meaning trustees must register the trust with HMRC within specific timeframes.

The 4 Main Types of Trusts Used in UK Wills

Understanding the main trust types helps you choose the right one for your situation. Each type offers different levels of control, flexibility, and tax treatment.

1. Bare Trust (Absolute Trust)

How it works: Assets are held for a named beneficiary who gains full control at age 18 in England and Wales or age 16 in Scotland. Until then, trustees manage the assets, but they have no discretion—the beneficiary has an absolute right to the assets.

Best for: Children or grandchildren when you want them to inherit at adulthood but not before.

Example: Michael leaves £30,000 to each of his three grandchildren in bare trusts. The trustees (his daughter) manage the money—perhaps investing it in ISAs—until each grandchild turns 18, at which point they receive full control. The eldest, now 22, used her £30,000 as a house deposit. The middle child, 16, knows exactly what she'll receive in two years.

Tax treatment: Assets are taxed as if they belong to the beneficiary from the outset. Income and gains are taxed at the beneficiary's rates (usually lower than trust rates). Potentially exempt from inheritance tax if the settlor survives 7 years after creating the trust.

2. Discretionary Trust

How it works: Trustees have full discretion to decide how and when to distribute income and capital among a class of beneficiaries. You might specify "my children and grandchildren" without naming specific amounts or conditions.

Best for: Flexible family situations, vulnerable beneficiaries who might not manage money well, or when you want trustees to adapt to changing circumstances over time.

Example: Sarah creates a discretionary trust for her four children aged 12, 15, 19, and 22. The trustees can give more to the child with disability care costs and less to the financially stable architect. When one child faces unexpected medical bills, the trustees release £20,000 for treatment. When another needs help with a business start-up, they provide a loan from the trust with favourable terms.

Tax treatment: Subject to inheritance tax charges at 10-year anniversaries and when assets exit the trust. Trust income is taxed at 45% (though beneficiaries can reclaim some tax when they receive distributions). Most complex tax treatment of the four types.

3. Life Interest Trust (Interest in Possession)

How it works: One person (the life tenant) receives income or use of assets during their lifetime. After their death, the capital passes to remaindermen—often children from a first marriage.

Best for: Blended families where you want to provide for your current spouse while ensuring children from a previous relationship ultimately inherit.

Example: Robert's will creates a life interest trust giving his second wife the right to live in the family home for her lifetime. She can't sell it or mortgage it without trustee approval, but she lives there rent-free and pays maintenance costs. When she dies or moves into care, the property passes to Robert's children from his first marriage. This way, Robert's wife has security, but his children are guaranteed their inheritance.

Tax treatment: Complex and depends on when the trust was created. Different rules apply to trusts created before and after 2006. Generally, the value of the trust property is included in the life tenant's estate for inheritance tax purposes when they die.

4. Fixed Interest Trust

How it works: Similar to a bare trust, but with a higher age threshold set by you—commonly 21, 25, or 30. Beneficiaries have a fixed right to the assets, but they must wait until they reach the specified age.

Best for: When you think 18 is too young for a beneficiary to manage a substantial inheritance, but you want certainty about who will inherit.

Example: Emma leaves £100,000 in trust for her son until he turns 25. She's seen him make impulsive financial decisions at 20, but she trusts that with more life experience, he'll manage the inheritance responsibly. The trustees can release money for specific purposes (education, first home) before age 25, but he gains full control at 25 regardless.

Tax treatment: Similar to bare trusts in many respects, though professional advice is recommended as treatment can vary based on the specific trust structure.

Comparison Summary

Trust Type Control Age Trustee Discretion Best For Tax Complexity
Bare 18 (16 Scotland) None—fixed entitlement Simple gifts to minors Low
Discretionary Varies by trustee decision Full discretion Flexible family needs High
Life Interest N/A (lifetime use) Limited Blended families Medium-High
Fixed Interest Settlor decides None—fixed entitlement Delayed maturity Low-Medium

When Should You Use a Trust in Your Will?

Trusts aren't necessary for everyone, but they're valuable in specific situations. Consider including a trust in your will if:

You have young children or grandchildren. Leaving assets directly to minors means the Court of Protection manages the inheritance until age 18, with associated fees and restrictions. A trust gives your chosen trustees immediate control to use the money for the children's benefit—school fees, activities, housing, care costs.

You have a blended family. Life interest trusts protect children from previous relationships while providing for your current spouse or partner. Without a trust, your spouse could inherit everything, remarry, and change their will to benefit their new family.

You have vulnerable beneficiaries. If a beneficiary has addiction issues, mental health challenges, learning disabilities, or poor money management skills, a discretionary trust ensures trustees can provide for them without giving direct access to large sums.

You want to protect assets from care costs. If you leave property outright to your spouse, it becomes part of their estate and could be assessed for care home fees. A life interest trust can provide your spouse the right to live in the property without it being fully owned by them.

You're unmarried partners. Cohabiting couples have no automatic inheritance rights. A trust can ensure your partner is provided for during their lifetime while protecting your estate for children or other family members after they die.

You want to minimize inheritance tax. While trusts don't automatically reduce inheritance tax, they can be structured strategically to take advantage of reliefs and exemptions, particularly if you're concerned about your estate exceeding the £325,000 nil-rate band.

You have complex assets. Business interests, investment portfolios, or property portfolios may need active management. Trustees can manage these assets professionally rather than passing them to beneficiaries who might lack expertise.

James and Lisa have three children aged 6, 9, and 14, plus Lisa has a 19-year-old from a previous relationship. They own a £450,000 home jointly and have £180,000 in savings. They set up life interest and bare trusts in their wills. If one dies, the survivor can continue living in the home (life interest). If both die, bare trusts for their three youngest children activate, with Lisa's brother and James's sister as trustees managing the inheritance until each child turns 18.

Who Are Trustees and What Do They Do?

Choosing the right trustees is crucial because they'll manage your assets and make decisions affecting your beneficiaries after you're gone.

What trustees do:

  • Hold legal ownership of trust assets
  • Invest trust funds wisely and responsibly
  • Distribute income and capital according to trust terms
  • Keep accurate records and accounts
  • Register the trust with HMRC's Trust Registration Service
  • File tax returns for the trust
  • Act in the best interests of beneficiaries
  • Make decisions impartially if there are multiple beneficiaries
  • Maintain trust property (repairs, insurance, maintenance)

Who you should choose as trustees:

Trustworthy individuals: Above all, choose people with integrity who will follow your wishes and act in beneficiaries' best interests.

Financially capable: They should understand basic financial management, though they can hire professionals for complex investments.

Willing to serve: Being a trustee is a significant responsibility. Confirm they're willing before naming them.

Likely to outlive you: Choose people younger than you or name replacement trustees in case your first choices die or become incapable.

Not conflicted: Trustees can be beneficiaries, but this can create conflicts. Consider appointing at least one independent trustee.

Common trustee choices:

  • Family members (siblings, adult children, parents)
  • Close friends who know your family well
  • Professional trustees (solicitors, accountants, trust companies)
  • A mix of family and professionals for balance

How many trustees? It's recommended to appoint at least two trustees. For property held in trust, you need at least two trustees (legal requirement). Some people appoint three or more to ensure decisions aren't deadlocked and someone remains if one trustee dies.

Can trustees be paid? Family trustees usually serve without payment, though they can claim reasonable expenses. Professional trustees charge fees, typically 1-2% of trust value annually. Your will should specify whether trustees can charge fees.

What if trustees disagree? Most trust decisions require unanimous agreement or majority vote (your will should specify). If trustees can't agree and the dispute is serious, beneficiaries can apply to the court to resolve it or remove a trustee.

Sophie names her sister Rachel and her friend David as trustees for her children's bare trusts. Rachel understands Sophie's values and knows the children well. David is a financial advisor who can manage investments. Together they balance emotional connection with financial expertise, ensuring the children's inheritance is well managed until they turn 18.

Trusts and Inheritance Tax: What You Need to Know

Trusts don't automatically avoid inheritance tax, but they can help manage it strategically. The tax treatment depends on the type of trust and when it was created.

Bare trusts and inheritance tax:

If you create a bare trust in your will, the assets usually form part of your estate when you die and may be subject to inheritance tax if your estate exceeds £325,000 (the nil-rate band). However, if the trust is created during your lifetime (not in a will), and you survive 7 years after creating it, the assets may fall outside your estate entirely.

Discretionary trusts and inheritance tax:

Discretionary trusts face more complex tax treatment:

  • Entry charge: If you put assets worth more than £325,000 into a discretionary trust, there may be an immediate 20% inheritance tax charge on the excess (though lifetime transfers have different rules than will trusts).

  • 10-year anniversary charge: Every 10 years, the trust is assessed for inheritance tax at up to 6% of the value above the nil-rate band.

  • Exit charge: When assets leave the trust (distributed to beneficiaries), there may be an exit charge of up to 6%, depending on how long the assets were held.

Life interest trusts and inheritance tax:

The tax treatment depends on when the trust was created. For trusts created in wills after October 2008, the value of the trust property is usually included in the life tenant's estate when they die, potentially triggering inheritance tax.

Trust income tax:

Trusts pay income tax on income they receive (rent, dividends, interest):

  • Bare trusts: Income taxed as the beneficiary's income (usually at their personal rates)
  • Discretionary trusts: Income taxed at 45% (trust rate), though beneficiaries can reclaim some tax when they receive distributions
  • Life interest trusts: Varies based on type and structure

Is professional advice necessary?

For straightforward bare trusts with modest assets, professional advice may not be essential. For discretionary trusts, life interest trusts, or estates approaching the inheritance tax threshold, professional advice is strongly recommended. Small errors in trust drafting can create significant unexpected tax liabilities.

Robert's estate is worth £500,000. Without a trust, his estate would pay inheritance tax on £175,000 (the amount above the £325,000 nil-rate band) at 40%, costing £70,000. He considers a discretionary trust but learns about the 10-year charges. After professional advice, he structures his will with a combination of outright gifts below the nil-rate band and a bare trust for his grandchildren, optimizing tax treatment.

Pros and Cons of Including a Trust in Your Will

Trusts offer powerful benefits, but they're not without drawbacks. Here's what you need to weigh.

Advantages of trusts in wills:

Control beyond death. You determine how and when beneficiaries receive assets, not them.

Protection for vulnerable beneficiaries. Ensure loved ones who can't manage money are provided for without giving them direct access to large sums.

Flexibility for changing circumstances. Discretionary trusts adapt to beneficiaries' changing needs over time.

Protection from care costs. Life interest trusts can provide for your spouse without assets becoming fully theirs and subject to care home assessments.

Blended family solutions. Balance providing for your current spouse with protecting children from previous relationships.

Professional management. Complex assets are managed by capable trustees rather than inexperienced beneficiaries.

Asset protection. Trust assets are separate from beneficiaries' personal assets, offering some protection from creditors or divorce settlements.

Disadvantages of trusts in wills:

Legal complexity. Trusts are more complicated than simple outright gifts and require careful drafting.

Cost. Professional trust drafting costs more than basic wills. Ongoing trustee management may involve fees.

Tax complexity. Discretionary trusts face complicated tax rules and potential charges at 10-year intervals.

Administrative burden. Trustees must register the trust, file tax returns, keep records, and make ongoing decisions.

Potential for disputes. Beneficiaries may disagree with trustee decisions or feel the trust is too restrictive.

Inflexibility. Once you're gone, your trust provisions can't be changed (though some trusts include flexibility mechanisms).

Trust Registration Service requirements. Trustees must register most trusts with HMRC, adding administrative requirements.

For most people, the question isn't whether trusts have pros and cons (they do), but whether the benefits for their specific situation outweigh the complexity and cost.

Common Trust Mistakes to Avoid

Even well-intentioned trust planning can go wrong. Here are the mistakes to avoid:

Choosing inappropriate trustees. Naming someone who's financially irresponsible, likely to die before your beneficiaries reach maturity, or unwilling to serve creates problems. Always confirm trustees are willing and capable.

Not naming replacement trustees. If your named trustees die, become incapable, or refuse to serve, your trust may fail or require court intervention. Name alternates.

Vague trust terms. "I want my trustees to use their judgment" isn't enough. Specify what you want—education, housing, maintenance, business start-up capital. Give trustees clear guidance.

Failing to fund the trust. A trust without assets is worthless. Ensure your will clearly states which assets go into the trust.

Ignoring tax implications. Creating a discretionary trust without understanding the 10-year charges can result in unexpected tax bills that erode the trust value.

Not reviewing the trust. Circumstances change—births, deaths, marriages, divorces. Review your will and trust provisions every 3-5 years to ensure they still match your wishes.

DIY complex trusts. While simple bare trusts can be done with online services, discretionary trusts and life interest trusts require professional drafting. The cost of getting it wrong far exceeds solicitor fees.

Conflicting with other will provisions. Ensure your will is internally consistent. If you leave your house to your spouse and also put it in trust for your children, you've created ambiguity and potential legal disputes.

Not coordinating with other assets. If you have life insurance, pensions, or jointly owned property, ensure these coordinate with your trust provisions. Life insurance might need to be written in trust separately.

Catherine wanted to leave her £200,000 estate in trust for her three children until they each turned 25. She used an online template but didn't specify what happened if a child died before 25. When her youngest died at 22, the trust terms were ambiguous—did his share go to his siblings, his children, or back into the general estate? The resulting legal dispute cost the family £18,000 and two years of bitter arguments.

How to Set Up a Trust in Your Will

Setting up a trust in your will requires careful planning and proper legal drafting. Here's the process:

Step 1: Identify whether you need a trust. Review the situations outlined earlier. If your estate is straightforward and all beneficiaries are responsible adults, you might not need a trust.

Step 2: Decide which type of trust. Based on your goals—protecting young children, providing for a spouse, managing complex assets—choose the appropriate trust type.

Step 3: Choose your trustees. Identify at least two people who are trustworthy, capable, willing, and likely to outlive you. Consider mixing family trustees with professional trustees for complex estates.

Step 4: Define trust terms. Decide:

  • Which assets go into the trust
  • Who the beneficiaries are
  • What conditions apply (age thresholds, specific purposes)
  • How much discretion trustees have
  • Whether trustees can be paid

Step 5: Decide on professional help. For simple bare trusts, online will services like WUHLD can guide you through the process with pre-drafted trust clauses. For discretionary trusts, life interest trusts, or estates with inheritance tax concerns, consult a solicitor specializing in trusts and estate planning.

Step 6: Draft and execute your will. Whether DIY or with a solicitor, ensure your will is properly executed according to the Wills Act 1837 requirements—signed by you and witnessed by two independent witnesses.

Step 7: Inform your trustees. Tell your chosen trustees they're named in your will and explain your wishes. Provide them with a copy of your will or a letter of wishes explaining your intentions.

Step 8: Review regularly. Review your will and trust provisions every 3-5 years or after major life events (births, deaths, marriages, house moves, significant wealth changes).

What it costs:

  • DIY online services with trust templates: £99-£199
  • Solicitor-drafted will with straightforward bare trust: £250-£500
  • Solicitor-drafted will with complex discretionary or life interest trust: £500-£1,500+
  • Ongoing trustee fees (if professional trustees): 1-2% of trust value annually

How long it takes:

  • Online service: 20-30 minutes to draft, then immediate execution
  • Solicitor consultation: Usually 2-4 weeks from first meeting to final will

Thomas wants a bare trust for his two children aged 9 and 12. He uses WUHLD's online service, which guides him through choosing trustees (his sister and brother-in-law), specifying that each child receives their inheritance at 18, and including a clause that if one child dies before 18, their share goes to the surviving child. The entire process takes 25 minutes and costs £99.99.

Frequently Asked Questions

Q: What is a trust in a will?

A: A trust in a will is a legal arrangement that activates when you die, allowing trustees to manage your assets for the benefit of chosen beneficiaries. Instead of leaving assets directly to someone, you place them 'in trust' with specific instructions about how and when they should be distributed. This gives you control over your estate even after death.

Q: What are the main types of trusts used in UK wills?

A: The four main types are bare trusts (assets held for beneficiaries who gain control at age 18), discretionary trusts (trustees decide how to distribute assets), life interest trusts (one person benefits during their lifetime, then assets pass to others), and fixed interest trusts (like bare trusts but with a higher age threshold like 21 or 25).

Q: When should I consider using a trust in my will?

A: Consider a trust if you have young children or grandchildren, a blended family, vulnerable beneficiaries who can't manage money, concerns about inheritance tax, or want to protect your family home from care costs. Trusts are also useful if you're unmarried or have complex assets that need careful management.

Q: Do trusts in wills avoid inheritance tax?

A: Trusts don't automatically avoid inheritance tax, but they can help manage it strategically. Bare trusts may be exempt if you survive 7 years after creating the trust. Some trusts face a 10-year anniversary charge and exit charges. However, trusts can protect assets and optimize tax planning when structured correctly with professional advice.

Q: Who should I choose as trustees for my will trust?

A: Choose trustees who are trustworthy, financially capable, willing to take on the responsibility, and likely to outlive you. Many people choose family members, close friends, or professional trustees like solicitors. It's recommended to appoint at least two trustees, and they should understand your wishes for how the trust should be managed.

Q: Can I set up a trust in my will myself or do I need a solicitor?

A: While you can legally write a will with a trust yourself, it's strongly recommended to use a solicitor or specialist will-writing service for trusts due to their legal complexity. Incorrectly drafted trusts can be invalid, create unintended tax liabilities, or fail to protect your assets as intended. For straightforward bare trusts, online services like WUHLD can guide you through the process.

Q: What's the difference between a will trust and a lifetime trust?

A: A will trust (also called a testamentary trust) is created in your will and only takes effect when you die. A lifetime trust is set up while you're alive and takes effect immediately. Will trusts are generally simpler and more cost-effective, while lifetime trusts offer more control during your lifetime but may have more complex tax implications.

Conclusion

Trusts in wills aren't just for the wealthy—they're practical tools that help ordinary families protect assets, provide for loved ones, and ensure their wishes are followed after they're gone.

Key takeaways:

  • A trust lets you control how and when beneficiaries receive your assets, rather than giving them everything immediately
  • The four main types—bare, discretionary, life interest, and fixed interest trusts—each serve different purposes
  • Trusts are particularly valuable for young children, blended families, vulnerable beneficiaries, and complex estates
  • Trustees manage the assets according to your instructions, so choose capable, trustworthy people
  • Trusts don't automatically avoid inheritance tax but can help manage it strategically with proper planning

Whether you need a simple bare trust to protect an inheritance for young children or a complex discretionary trust to provide flexibility for changing family circumstances, the most important step is understanding your options and making an informed decision.

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Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.

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