A trust is a way of managing how assets are used or passed on.
It’s a specific legal arrangement in which one person (the settlor, or truster in Scotland) gives cash, property or assets to someone else (the trustees) to look after on behalf of another person or persons (the beneficiaries).
The person who puts assets in trust can decide how the assets should be used – this is normally set out in a will or a ‘trust deed’ – or give the trustee flexibility in managing and distributing the assets. This table explains the different roles involved:
| The settlor/truster | The trustee(s) | The beneficiary(s) |
|---|---|---|
| The person who puts the assets in trust. | The legal owner of the assets held in trust.Trustees are responsible for managing the trust in line with the settlor’s wishes and the day-to-day running of the trust. | The person(s) who benefits from the trust. |
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Will trusts vs lifetime trusts
There are two ways to set up a trust, depending on when you want the assets to be passed on:
- Will trusts: A will trust only comes into effect when you die. You set out the conditions of your trust in your will when writing it, and when you die, the assets are placed into trust rather than given directly to beneficiaries.
- Lifetime trusts: You can use lifetime trusts to pass on assets while you’re still alive. Lifetime trusts usually come into effect as soon as they’re set up.
See our guide to inheritance tax and trusts to find out more about the different types of lifetime trusts and how they’re taxed.
This table sets out some of the key differences between will trusts and lifetime trusts:
| Will trusts | Lifetime trusts |
|---|---|
| Set up | |
| Will trusts are written into your will and only come into effect once you die. | Usually come into effect as soon as they are set up |
| Estate administration and inheritance tax | |
| Assets placed into a will trust are treated as part of your estate. If probate or confirmation is required, this must be granted before the assets are placed in trust. | Assets placed into a lifetime trust aren’t considered part of your estate, meaning trustees can manage and distribute assets without a grant of probate or confirmation. |
| Assets placed into a will trust are generally still considered part of your estate for inheritance tax purposes. However, placing assets in trust can affect how allowances and exemptions are applied. | You may need to pay inheritance tax when setting up a trust if the value exceeds your inheritance tax allowance and on each 10-year anniversary of the trust.If you die within seven years of placing assets in trust, they may be subject to inheritance tax. Otherwise, they will normally fall outside of your estate.This may not be the case if you’ve placed an asset in trust but continued to benefit from it – for example, by living in a property. |
| Ownership | |
| You remain the legal owner of the assets until you die. | Assets are usually placed into trust immediately, meaning you’re no longer the legal owner. |
Broken trust
Beware of unregulated firms pushing the benefits of lifetime trusts.
Which? has previously reported on the distress caused by firms that encouraged people to put money and property into lifetime trusts, on the understanding that it would reduce their inheritance tax bill or prevent care home fees. Not only is this not the case, but when these firms collapsed, customers faced delays and difficulty when trying to access their assets.
Will writing and estate planning are unregulated: if you write assets into a trust with an unregulated firm, you could be left with no avenues for support and redress if something goes wrong.