What are the types of trusts, and which one is best for me?
Learn what types of trust exist, what they are, and how they could be a beneficial tool for you to utilise.

Table of Contents
- What are the types of trusts, and which one is best for me?
- Why is it important to know about different types of trusts?
- What is a trust fund?
- Why would I want to set up a trust fund?
- What are the different types of trusts in the UK?
- What do I need to consider when choosing the trust for me?
- Need help setting up a trust? Speak to TheWealthPoint
- FAQs
What are the types of trusts, and which one is best for me?
Trusts are more than just a financial tool; they’re a cornerstone of effective financial planning, offering a range of options for managing your wealth constructively. And no, they aren’t just tools for the wealthy; trusts are there for anyone who wants to plan their financial future or manage their wealth thoughtfully.
Why is it important to know about different types of trusts?
Each trust offers something different, catering to a wide array of financial needs and personal circumstances. Simply put, each trust serves a specific purpose. Some are great at protecting your assets and ensuring financial stability for your beneficiaries; others offer tax benefits or help maintain control over how your assets are used and manage your estate according to your wishes.
But first, before we delve into the different types of trusts, let’s quickly explain what a trust is and why you might want to set one up.
What is a trust fund?
A trust fund is a legal arrangement allowing you, the settlor, to put aside assets such as money, property, or investments for the benefit of someone else, known as the beneficiary.
In a trust fund, a third party called the trustee, is given the responsibility to manage and control the assets you’ve put in the fund. The trustee is the legal owner of the trust, and it’s their responsibility to ensure the assets are handled according to your instructions.
As mentioned above, trust funds are not just for the wealthy; they can be a practical tool for anyone seeking to manage their assets responsibly.
Why would I want to set up a trust fund?
Trust funds offer a structured way to pass on wealth, protect assets, and can sometimes even provide tax benefits. While setting up a trust fund can offer multiple benefits such as supporting a family member or managing charitable donations, the main reason most people set them up is for asset protection.
Trusts can safeguard your wealth from creditors or legal disputes e.g. divorce settlements or legal judgement, protecting assets for future generations. That’s because once assets are placed in a trust, they’re no longer considered the personal property of the settlor i.e. you, making them less accessible to claims against the settlor’s estate.
They also provide a means for you, the settlor, to specify terms and conditions on how and when the assets are distributed, maintaining control over their use, ensuring they’re used as intended. For example, for parents, trusts can be a way to secure your children’s financial future, especially if they’re too young or unable to manage large sums of money responsibly.
Trusts can also offer tax advantages, potentially mitigating inheritance tax, capital gains tax, or income tax, depending on the type of trust and the circumstances. However, tax rules can be complex and are subject to change, so professional advice is necessary.
In charitable cases, they allow you to contribute to causes you care about while ensuring your donations are used effectively.
Thinking about your options?
What are the different types of trusts in the UK?
Choosing the right trust for you is an important decision in your financial planning journey. With several types of trusts available, each designed to serve specific purposes and needs, understanding the nuances of each trust type will help you determine which trust aligns best with your financial goals and personal circumstances.
1. Bare Trusts
Bare trusts, also known as ‘simple trusts,’ are the most straightforward type of trust you can use. In a bare trust, the assets are held in the trustees’ names to ensure legal control, protect the assets, simplify administration, comply with legal requirements, and provide clarity in transactions. Despite holding the legal title, the trustees in a bare trust have limited discretion and must act according to the settlor’s direct instructions or until the beneficiaries come of age – 18 years old in England and Wales or 16 in Scotland.
The key features of a bare trust include:
- Simplicity and transparency: The beneficiaries and their entitlements are clearly defined from the outset.
- Tax treatment: For tax purposes, the assets in a bare trust are treated as belonging to the beneficiaries. This means any income generated by the trust’s assets (like rent from property or dividends from shares) is taxed on the beneficiary.
- Control and access: Once the beneficiary is legally an adult, they have complete control over the assets and can use them as they see fit.
Bare trusts are often used:
- To pass assets to young people, where you want to ensure they receive them at a specific age.
- In the estate planning process, as they can be an effective way of managing inheritance tax liabilities.
2. Interest in Possession Trusts
If you want to ensure your spouse receives a steady income after you’re gone but also want to leave the capital to your children, this is where an Interest in Possession (IIP) Trust can be an ideal solution.
In an IIP Trust, you designate a beneficiary, known as the ‘life tenant’ (typically your spouse). This person will receive the income generated from the trust’s assets during their lifetime, as long as they live. However, they usually don’t have rights over the assets that produce this income. The capital or the assets themselves are preserved for other beneficiaries, often your children, who will inherit them after the life tenant’s death.
Key features of IIP Trusts include:
- Immediate income benefit and steady income for life: The life tenant receives income (like rent from property or dividends from investments) as soon as the trust is set up, and they’ll continue to receive regular income for life.
- Control over assets: While the trustees have control over the trust’s assets to manage the assets, their primary duty is to protect the interests of the life tenant, ensuring a reliable income.
- Tax implications: As the life tenant, your spouse would pay income tax on the earnings from the trust. It’s essential, therefore, to consider how inheritance tax might affect the trust, depending on the timing of when the trust was set up and the value of the assets.
In practical terms, IIP Trusts are commonly used for:
- Providing financial security to a spouse or partner while ensuring the principal assets are eventually passed on to your children or other designated beneficiaries.
- Balancing the need for immediate income provision with long-term estate planning goals.
3. Discretionary Trusts
If you have assets you want to leave behind but are unsure about the future needs or circumstances of your beneficiaries, Discretionary Trusts can be an ideal choice. This type of trust offers you the flexibility to give the trustees the power to decide how, when, and to whom the trust’s assets are distributed.
It’s particularly useful if your beneficiaries’ situations are likely to change, such as children who may have different needs – different educational or career paths; or family members whose financial circumstances might evolve.
Key aspects of Discretionary Trusts to consider:
- Flexibility for trustees: Trustees have the discretion to distribute assets based on the beneficiaries’ current and future needs, making this trust adaptable to changing life situations.
- Asset protection and control: If you’re concerned about beneficiaries potentially mismanaging their inheritance, Discretionary Trusts provide a safeguard to protect your assets from being squandered as the beneficiaries do not have direct access to the trust assets, preventing impulsive financial decisions, nor do beneficiaries have an automatic right to the trust’s assets or income.
- Tax implications: Discretionary Trusts come with specific tax responsibilities, including potential inheritance tax implications and income tax on the trust’s earnings. It’s important to consider these factors when setting up a Discretionary Trust.
Practical uses of Discretionary Trusts:
- Ideal for families with young children where future educational or career support might be needed.
- If you have a family member with a disability or uncertain financial future, this trust ensures they are taken care of without directly handing over assets.
- Useful in situations where you wish to leave an inheritance but are concerned about beneficiaries’ potential lack of responsibility or capability to manage the assets themselves.
4. Accumulation and Maintenance Trusts
Accumulation and Maintenance Trusts are designed to accumulate income over time, allowing trustees to accumulate income within the trust, growing the existing capital. So, if you’re considering long-term financial planning for your children or grandchildren, Accumulation and Maintenance (A&M) Trusts can be a good option.
Key features of A&M Trusts:
- Future financial planning: This trust allows for income accumulation which can then be reinvested back into the trust, enhancing the value of the assets over time. It’s a strategic way to build wealth for future generations.
- Controlled distribution: The trustees have the duty to manage the trust’s assets until the beneficiaries reach the predetermined age, offering a structured approach to inheritance.
- Tax considerations: A&M Trusts have specific tax rules, particularly concerning inheritance tax and income tax on the accumulated income. These need careful consideration to ensure tax efficiency.
A&M Trusts are most often used for:
- Setting aside funds for your children’s education or future financial needs allows the trust to grow and provide more substantial support when they reach adulthood.
- Situations where you want to ensure your assets are not distributed prematurely, thus protecting them until the beneficiaries are mature enough to manage their inheritance.
5. Mixed Trusts
Mixed Trusts are a combination of different types of trusts within a single structure, allowing you to tailor the management of your assets to suit a variety of needs and beneficiaries. This kind of comprehensive solution is versatile as it can include elements of bare trusts, interest in possession trusts, and discretionary trusts, creating a tailored approach to asset management and beneficiary care.
Key features of mixed trusts:
- Versatility in asset management: Mixed trusts provide the flexibility to apply different trust rules to various portions of your assets, catering to the mixed needs of multiple beneficiaries.
- Customised beneficiary provisions: This setup allows you to specify different conditions and benefits for different beneficiaries, ensuring each one’s unique requirements are met.
- Complex tax considerations: The diverse nature of mixed trusts means they have a complicated tax structure. Each part of the trust is taxed according to its trust type, necessitating careful tax planning and advice.
Ideal applications of Mixed Trusts:
- Perfect for families with complex financial situations, where different members have varied needs, such as a combination of immediate income, long-term asset protection, and flexibility for unforeseen circumstances.
- Suitable in scenarios where you wish to establish a legacy that addresses both immediate family needs and future generational wealth, all within a single trust framework.
6. Settlor-Interested Trusts
Settlor-interested trusts can be structured so that either you, your spouse, or your civil partner benefit directly from the trust during your lifetime. They offer you, the settlor, a way to manage and protect your income-generating assets or property that you may still want to use or benefit from, making them a unique option in estate planning.
Key features of settlor-interested trusts:
- Benefit to the settlor: Unlike other trusts, settlor-interested trusts allow you to retain a direct benefit from the trust assets, either in the form of income or use of the property.
- Tax considerations: These trusts have specific tax implications, particularly in terms of income tax, capital gains tax, and inheritance tax, as the benefits to the settlor are taken into account.
Ideal scenarios for settlor-interested trusts:
- Suitable if you have income-generating assets or property that you wish to place in trust but still want to benefit from, either now or in the future.
- Appropriate for ensuring that assets like a family home can be passed onto future generations while still providing you with a place to live or a source of income.
7. Non-Resident Trusts
Non-resident trusts are an option if you’re managing assets outside of the UK or if the trustees are not UK residents. These trusts are governed by specific international and UK tax laws, offering a solution for international asset management, encompassing the benefits of trust structures while navigating the complexities of cross-border financial planning.
Key features of non-resident trusts:
- International scope: These trusts are particularly relevant if the assets, trustees, or beneficiaries are not based in the UK.
- Tax considerations: Non-resident trusts are subject to complex tax rules, both in the UK and potentially in other jurisdictions, depending on the location of the assets and the residency of the trustees and beneficiaries.
Ideal scenarios for non-resident trusts:
- Suitable for individuals with international assets who wish to manage them in a trust structure, especially when dealing with different legal systems and tax regimes.
- Appropriate for UK expatriates or individuals with financial interests outside the UK, providing a way to manage and protect their assets while considering international tax implications.
What do I need to consider when choosing the trust for me?
Choosing the right trust involves more than just understanding the different types. It’s about aligning the trust with your unique financial goals and personal circumstances. To help decide which one could be the best for you:
- What do you want to do with your money?: Begin by clearly defining your financial goals. Are you looking to protect assets, provide for your family’s future, or support charitable causes? Your objectives will significantly influence the type of trust that’s most suitable.
- What assets would you want to include in a trust?: Consider which assets you intend to include in the trust. Different types of assets may be better managed by different types of trusts, depending on your goals and the beneficiaries’ needs.
- Who are the best people to manage the trust?: Choosing trustworthy and capable trustees is crucial. They should be individuals or entities with the necessary skills and knowledge to manage the trust effectively and in accordance with your wishes and in the best interest of the beneficiaries.
- What are the tax implications of each trust?: Each type of trust has unique tax considerations, including income tax, capital gains tax, and inheritance tax. It’s important to understand these implications to ensure the trust aligns with your tax planning strategies.
- What are your personal and family circumstances?: Your personal situation and family dynamics are key in determining the right trust. Factors such as the age of your beneficiaries, their ability to manage finances, and any special needs they may have, should be considered.
Need help setting up a trust? Speak to TheWealthPoint
Understanding trusts can be complex, especially with the tax details and aligning them to your financial goals. That’s where our team at TheWealthPoint comes in. We offer personalised advice, ensuring your trust fits perfectly with your long-term objectives and is efficient for your tax situation.
Whether it’s about safeguarding your assets, caring for your loved ones, or securing your legacy, the right guidance is crucial. Let us help you create a trust that’s tailored to your needs, providing you and your future generations with peace of mind.
Ready to start the conversation?
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FAQs
Can I put my house in a trust for my children?
Yes, you can put your house in a trust for your children. Any of your assets can be placed into a trust but you just need to be sure that its the correct option for you before doing so. Placing your property into a trust may be beneficial if you wish to give it to a young or vulnerable beneficiary. Financial advisers are able to tell you everything you need to know as well as explaining the fees, considerations and tax implications you must be aware of before proceeding.
Do you pay inheritance tax on trusts?
You may pay inheritance tax on a trust depending on the rules that govern the kind of trust you have. For the majority of trusts, you will usually have to pay inheritance tax on the value of the trust that is over the threshold of ÂŁ325,000. The rules vary and can be fairly complex so it’s always best to consult a financial professional to get some advice.
What is the best age to set up a trust?
Generally speaking, there isn’t really a ‘best age’ to set up a trust. Your circumstances will usually be a driving factor in considering a trust but you are able to do this once you are 18 (the grantor and trustee must be this age, beneficiaries can, of course, be a lot younger). If you’re thinking about setting up a trust or you want to know more about them, speak to an adviser so you’re aware of all avenues you can take.

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