Definition
A trust deed is the legal document that creates a lifetime trust and sets out how the trust assets should be managed and distributed to beneficiaries.
Unlike a will, which only takes effect when you die, a trust deed creates a trust that starts working immediately during your lifetime—enabling inheritance tax planning, asset protection, and controlled distribution that a will alone cannot achieve.
What Does Trust Deed Mean?
Under English and Welsh law, a trust deed is the formal document that establishes a lifetime trust—a trust created while you're alive, as opposed to a will trust that only takes effect on death. Also known as a settlement deed or trust document, the trust deed must be properly executed as a deed (signed, witnessed, and delivered) to be legally valid. According to HMRC's Trusts, Settlements and Estates Manual (TSEM9530), "The settlor decides how the assets in a trust should be used—this is usually set out in a document called the 'trust deed'."
The trust deed serves as the instruction manual for your trust. It identifies the settlor (person creating the trust), names the trustees (who manage the assets), describes the trust property, identifies the beneficiaries (who benefit), and sets out the rules governing how the trust operates. Crucially, the trust isn't created until the settlor actually transfers assets to the trustees—a declaration of intention alone is insufficient. This transfer means the settlor gives up legal ownership and direct control, which is essential for effective inheritance tax planning. HMRC will disregard trusts where the settlor retains too much control.
Trust deeds contain several essential elements. They specify the trustees' powers—what they can do with investments, distributions, and beneficiary appointments. They set out beneficiaries' entitlements, which might be absolute (the beneficiary owns the assets outright), life interest (someone benefits during their lifetime with others inheriting later), or discretionary (trustees decide who gets what and when). Sarah, age 68, created a discretionary trust deed transferring £325,000 into trust for her three children. The deed names her solicitor and daughter as trustees, gives them wide investment powers, and allows them discretion over when and how much to distribute. If Sarah survives seven years, the £325,000 will be outside her estate for inheritance tax purposes, potentially saving £130,000 (40% of £325,000).
Trust deeds can be irrevocable (cannot be changed) or revocable (the settlor retains power to amend or revoke), though irrevocable trusts are more common for inheritance tax planning. The deed may include conditions, restrictions, or guidance for trustees, and will contain administrative provisions covering trustee appointment and removal, accounting requirements, and meeting procedures. Once executed, trust deeds are difficult to amend—changes may require all beneficiaries' consent or court approval. If the trust is irrevocable without amendment provisions, changes may be impossible.
Different trust types require different trust deed provisions. Discretionary trusts face complex inheritance tax rules under the "relevant property regime," with potential entry charges, 10-year anniversary charges, and exit charges. Bare trusts have minimal deed requirements because the beneficiary has absolute entitlement. Property declarations of trust (a specific type of trust deed) focus on recording beneficial ownership shares—David and Emma, unmarried partners buying a £380,000 property, execute a declaration of trust recording that David owns 60% and Emma 40% of the beneficial interest, reflecting their unequal contributions. This creates legal certainty about their ownership shares.
Professional drafting is essential for complex trusts. Trust deeds involve intricate legal and tax implications—mistakes can result in invalid trusts, unexpected tax charges, trustee liability, or failure to achieve estate planning objectives. While you can legally write your own trust deed, it's strongly inadvisable for anything beyond the simplest bare trust. James established a trust deed for his 8-year-old grandson, transferring £50,000 in investments. The deed states trustees must hold capital until the grandson reaches 25, but can use income for education and maintenance. This simple bare trust still benefited from professional drafting to ensure proper execution and tax efficiency.
Common Questions
"When do I need a trust deed rather than just putting something in my will?" You need a trust deed to create a lifetime trust that takes effect immediately while you're alive. This allows you to transfer assets out of your estate for inheritance tax planning, protect assets from care costs, or set up controlled arrangements for vulnerable beneficiaries. Will trusts only take effect when you die and don't provide lifetime benefits.
"Can I write my own trust deed or do I need a solicitor?" While you can legally write your own trust deed, it's strongly inadvisable for anything beyond the simplest bare trust. Trust deeds involve complex legal and tax implications—mistakes can result in unexpected tax charges, invalid trusts, or trustee liability. For discretionary trusts, inheritance tax planning, or substantial assets, professional drafting by a specialist solicitor is essential.
"What happens if I want to change something in the trust deed after I've signed it?" Amending a trust deed after execution is difficult and depends on the trust type and deed provisions. Some deeds include amendment powers for the settlor or trustees. Otherwise, you may need all beneficiaries' consent (if adults with capacity) or court approval. If the trust is irrevocable without amendment clauses, changes may be impossible.
Common Misconceptions
Myth: "A trust deed and a will are the same thing—they both say who gets your assets"
Reality: A trust deed and a will are completely different legal documents. A will takes effect only when you die and distributes your estate at that time. A trust deed creates a lifetime trust that takes effect immediately, transferring assets into trust while you're alive. A trust deed can achieve things a will cannot, such as immediate inheritance tax planning and asset protection during your lifetime.
Myth: "Once I put assets in a trust using a trust deed, I can still control and use those assets exactly as before"
Reality: When you transfer assets into trust via a trust deed, you generally give up legal ownership and direct control. The trustees become the legal owners and must manage assets according to the trust deed terms and their fiduciary duties. This is essential for inheritance tax planning—HMRC will ignore trusts where the settlor retains too much control.
Related Terms
Understanding Trust Deed connects to these related concepts:
- Trust: A trust is the broader concept; a trust deed is the specific document that creates a lifetime trust
- Settlor: The settlor is the person who creates the trust by executing the trust deed and transferring assets into trust
- Trustee: Trustees are appointed in the trust deed to hold legal title to trust assets and manage them according to the deed's terms
- Beneficiary: Beneficiaries are named in the trust deed as individuals entitled to benefit from the trust assets
- Lifetime Trust: A lifetime trust is the type of trust created by a trust deed, as opposed to a will trust created by a will
Related Articles
- Discretionary Trusts in Wills Explained: Explains discretionary trust principles that apply whether the trust is created by trust deed (lifetime) or by will (on death)
- Property Protection Trusts for Homeowners: Illustrates how trust deeds create property protection trusts to safeguard assets from care costs
- Using a Deed of Variation to Change a Will: Explores how deeds of variation can create trust arrangements post-death, serving similar purposes to lifetime trust deeds
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Legal Disclaimer: This glossary entry provides general information about trust deeds and does not constitute legal advice. Trust deeds involve complex legal and tax implications. For advice specific to your situation, consult a qualified solicitor who specializes in trusts and estate planning.