Trusts Explained: Why (and When) You Might Actually Need One

Trusts have a reputation as a tool for the very wealthy, but they solve genuinely practical problems for a wider range of families than that reputation suggests - and they’re also frequently recommended when they’re not actually needed. Here’s an honest look at when a trust genuinely helps.

What a trust actually is

A trust is a legal arrangement where one or more trustees hold and manage assets on behalf of one or more beneficiaries, according to terms set out by the person creating the trust (the settlor). The trustees have a legal duty to manage the assets in the beneficiaries’ interests, following the trust’s specific terms.

Situations where a trust genuinely solves a real problem

• Providing for minor children. If both parents died while children were young, a trust can hold their inheritance until they reach an age the parents consider appropriate (often 18, 21, or 25, rather than the child receiving a potentially large sum immediately at 18), with trustees managing the money sensibly in the meantime.
• Providing for a vulnerable beneficiary. If a beneficiary has a disability, addiction, or other vulnerability, a trust can ensure money is managed and released appropriately, rather than given as a lump sum that could be mismanaged or affect means-tested benefit eligibility.
• Second marriages and blended families. A trust can provide income or a home for a second spouse during their lifetime, while ultimately preserving the capital for children from a first marriage - a genuinely common and effective use (see our dedicated article on wills and second marriages).
• Protecting an inheritance from a beneficiary’s own creditors or a future divorce. Assets held in a properly structured trust are generally more protected from a beneficiary’s personal creditors or matrimonial claims than an outright inheritance would be - though this isn’t absolute, and courts do have powers to look at trust assets in some divorce proceedings.

Where trusts are less useful than commonly assumed

Trusts are sometimes recommended primarily as an Inheritance Tax planning tool, but the tax treatment of trusts is genuinely complex, with their own charges (including periodic and exit charges for many types of trust) that can offset or even exceed the IHT saving in some cases. A trust set up purely for tax reasons, without a genuine underlying need (like those described above), is worth scrutinising carefully - simpler options like lifetime gifting under the annual exemptions and the seven-year rule (see our dedicated article on gifting money to family) often achieve a similar reduction in a future IHT bill, since the administrative cost and complexity of running a trust indefinitely is a real, ongoing burden, not a one-off decision.

The main types of trust used in UK estate planning

• Bare trust: the beneficiary has an absolute right to the assets, usually used for simple gifts to minors who will receive the assets outright at 18.
• Discretionary trust: trustees have discretion over how and when to distribute assets among a group of potential beneficiaries - flexible, but generally the most complex from a tax perspective.
• Life interest (or ‘interest in possession’) trust: a beneficiary (often a surviving spouse) receives income or use of an asset (commonly a home) for their lifetime, with the capital passing to other beneficiaries (often children) afterward.

Why trusts and the 2026/2027 IHT changes interact

The new £2.5 million cap on 100% Agricultural and Business Property Relief (see our dedicated article) includes specific, complex rules for how the cap applies to qualifying assets held within trusts, including transitional provisions for trusts set up before 30 October 2024 - anyone with business or agricultural assets held in an existing trust structure should have this reviewed specifically in light of the new rules.

Getting the right advice

Because trusts involve ongoing legal and tax obligations (including registration with HMRC’s Trust Registration Service in most cases, and potentially periodic tax charges), setting one up should be a considered decision made with a solicitor or STEP-qualified adviser who can assess whether a trust genuinely fits your situation - not a default estate planning tool applied without a specific underlying need.

The bottom line

Trusts genuinely solve real problems - providing for minor or vulnerable beneficiaries, managing blended family situations, or protecting an inheritance from a beneficiary’s future circumstances - but they’re not automatically the right tool for everyone, particularly if the primary motivation is tax saving alone. A trust set up without a genuine underlying need can create more ongoing cost and complexity than benefit.