What a trust is in plain English
A trust is a legal arrangement in which one person (the settlor) transfers assets to another person or persons (the trustees) to hold for the benefit of specified people or purposes (the beneficiaries). The trustees are the legal owners of the assets but must manage and apply them for the benefit of the beneficiaries, in accordance with the terms of the trust.
In estate planning, trusts most commonly arise on death -- created by a clause in the will that directs assets into trust rather than outright to a beneficiary. They can also be created during lifetime by a deed of settlement, which has different tax implications.
Trustees have legal duties governed primarily by the Trustee Act 2000 and the general law of equity. They must act in the best interests of the beneficiaries, invest prudently (the "prudent investor" standard under the Trustee Act 2000), keep accounts, and act impartially between different classes of beneficiary.
Legal note: The modern framework for trustee duties is set out in the Trustee Act 2000, which introduced a statutory duty of care (s.1) and a general power of investment (s.3). The requirement to act in the best interests of beneficiaries is a fundamental principle of equity, most clearly stated in Cowan v Scargill [1985] Ch 270.
Protective property trust -- shielding the family home from care costs
A protective property trust (PPT), sometimes called a property trust will, is the most widely used trust in English estate planning for homeowning couples. It works by ensuring that when the first partner dies, their share of the family home does not pass outright to the survivor but instead passes into a trust, with the survivor as the primary beneficiary.
The practical effect is that the deceased's share of the property is ring-fenced. If the surviving partner later needs residential care, the local authority means-tests their assets -- including property. But the deceased's share, held in trust, is not the survivor's asset and should not be assessed. The survivor's own share may still be assessed, but protecting half the property significantly reduces exposure.
The survivor has the right to live in the property during their lifetime under the trust terms. On the survivor's death, both shares of the property pass to the ultimate beneficiaries -- typically the children. The trust also provides protection if the survivor remarries, ensuring the deceased's share does not ultimately pass to a new spouse.
Legal note: Means-testing for residential care is governed by the Care Act 2014 and the Care and Support (Charging and Assessment of Resources) Regulations 2014. The upper threshold above which a person is fully self-funding is currently £100,000 (increased from £23,250 in October 2025). The treatment of property held in trust depends on the nature of the interest -- a life interest does not give the beneficiary a capital asset for means-testing purposes.
Tip: A PPT only works if the property is owned as tenants in common rather than joint tenants. If your property is held as joint tenants, a deed of severance must be executed before the wills are made. Your will writer will advise on this.
Discretionary trust -- flexibility for uncertain futures
A discretionary trust gives trustees the power to decide which beneficiaries receive income or capital from the trust, and in what proportions, within the class of beneficiaries defined by the trust deed. There are no fixed entitlements -- the trustees exercise genuine discretion.
Discretionary trusts are used where flexibility is needed: where the needs of beneficiaries cannot be predicted at the time the trust is created, where some beneficiaries may need protection from creditors or divorce, or where tax planning flexibility is valuable. They are also used in nil-rate band trust planning, though this is less common since the introduction of the transferable NRB.
The main disadvantage of discretionary trusts is the relevant property regime -- the trust pays tax at ten-year anniversary points (the periodic charge) and on distributions from the trust (the exit charge). These charges are relatively modest for most estates but add administrative complexity.
Legal note: Discretionary trusts fall within the relevant property regime under Part III Chapter III of the Inheritance Tax Act 1984. The periodic charge (ten-year anniversary tax) is governed by s.64 IHTA 1984 at a rate of up to 6% of the value of the trust fund above the nil-rate band. Exit charges under s.65 apply on distributions.
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Find my specialistLife interest trust -- balancing the survivor and the children
A life interest trust gives the surviving partner (the "life tenant") the right to receive income from the trust assets -- and in many cases, the right to live in the property -- during their lifetime. On the life tenant's death, the trust capital passes to the remainder beneficiaries (typically children).
This structure is the most effective solution to the second marriage problem with mirror wills. The survivor is provided for during their lifetime, but the capital of the estate is preserved for the intended beneficiaries and cannot be redirected by the survivor's subsequent marriage or will.
Life interest trusts are also used for disability planning -- where a beneficiary with mental health challenges or vulnerability needs income support without the risk of capital being exploited. And they are used for complex family situations: blended families, children from previous relationships, or situations where the testator wants to ensure the family home remains available for children rather than being sold.
Trust registration requirements
Most trusts created on or after 6 October 2020 must be registered with HMRC's Trust Registration Service (TRS). This includes trusts created by a will that hold assets for longer than two years. The registration must include details of the trust, the trustees, and the beneficial owners.
Failure to register when required is a criminal offence under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and can result in financial penalties. Your solicitor or will writer will advise on registration obligations when the trust is created.
Legal note: The Trust Registration Service was established under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692), as amended by the Money Laundering and Terrorist Financing (Amendment) (No.2) Regulations 2022. Trusts that are not registered when required face penalties under Regulation 86.
Property Trusts and Estate Trusts -- The London Guide -- common questions
Does a protective property trust actually work for care costs?
It can, when correctly structured. The local authority cannot assess the deceased's share of the property held in trust as the survivor's capital. However, the rules are complex and subject to change, and the outcome depends on the specific structure of the trust. A local authority that suspects a trust was created solely to avoid care costs can challenge it. Obtaining specialist advice at the time of drafting is essential.
How much does it cost to set up a trust in a will?
Adding a protective property trust to mirror wills typically costs an additional £300-£600 on top of the will drafting fees. Standalone lifetime trusts are more complex and cost £1,000-£3,000 depending on the type and assets involved. Annual trustee costs (accounting, administration) also apply.
Who should be a trustee?
Trustees must be over 18, of sound mind, and willing to take on the role. For family property trusts, the surviving spouse/partner and adult children are common choices. For larger or more complex trusts, a professional trustee (solicitor or trust company) provides additional protection and expertise. You can have up to four trustees on a trust holding land.
Can a trust avoid inheritance tax?
Trusts can form part of an IHT mitigation strategy, but they do not simply avoid the tax. Assets in a discretionary trust are subject to the relevant property regime with ten-year and exit charges. A protective property trust ring-fences the deceased's share from the survivor's estate but does not reduce the overall IHT position. Lifetime trusts used to move assets outside the estate are subject to the seven-year rule for PETs or the relevant property regime for chargeable lifetime transfers.
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