What a trust does

A trust is a legal arrangement where you (the "settlor") transfer assets to be held by "trustees" for the benefit of chosen "beneficiaries," under terms you set out. Trusts can control how and when beneficiaries receive assets — useful for protecting money for young children, vulnerable beneficiaries, or simply spreading out when and how an inheritance is received.

How trusts interact with Inheritance Tax

Putting assets into most types of trust can be treated as a gift for IHT purposes, potentially subject to the same seven-year rule as other lifetime gifts — though trusts also have their own additional tax rules (including periodic and exit charges in some cases) that don't apply to simple outright gifts, making them more complex to navigate correctly.

Common reasons people use trusts

  • Protecting an inheritance for children until they're older, rather than receiving a lump sum at 18
  • Providing for a vulnerable beneficiary without affecting their entitlement to means-tested benefits
  • Controlling how assets are used or distributed by a future generation
  • Certain Inheritance Tax planning strategies, though these have become more restricted and complex over the years

Trusts are not a simple DIY shortcut

Setting up a trust incorrectly, or using the wrong type for your goals, can create unexpected tax charges, ongoing administrative burdens (annual trust tax returns, trustee responsibilities), and sometimes fail to achieve the intended outcome at all. This is an area where professional legal and tax advice is generally essential rather than optional, given the complexity and cost of getting it wrong.

Trusts vs simpler alternatives

For many people, straightforward gifting (using the seven-year rule and annual exemptions) or simply structuring a will carefully achieves similar outcomes with considerably less ongoing complexity and cost. Trusts tend to earn their complexity when there's a specific need — a vulnerable beneficiary, a blended family, or a substantial estate — rather than being a default first step for modest estates.

Key takeaways

  • Trusts let you control how and when beneficiaries receive assets, beyond a simple gift or bequest.
  • Assets placed in trust can still be subject to IHT rules, plus additional trust-specific tax charges.
  • Professional advice is generally essential — trusts are complex and costly to get wrong.
  • Simpler gifting or careful will planning often achieves similar goals for more modest estates.