Types of trust explained

There are dozens of trust types. Five of them account for almost everything an ordinary UK family will ever need.

What's on this page

Quick comparison#

Type	Who benefits	Typical use	Tax weight
Bare	One named person, absolutely at 18	Gifts to children and grandchildren	Light — taxed as the beneficiary's
Interest in possession	Income/occupation for one, capital for others	Second marriages, providing for a spouse	Moderate
Property protection	Survivor occupies, children inherit	Care-fee planning	Moderate
Discretionary	A class; trustees choose	Vulnerable or unpredictable circumstances	Heavy — relevant property regime
Disabled person's	A disabled beneficiary	Protecting means-tested benefits	Favourable, if conditions met

Bare trust#

An asset is held for a named beneficiary who becomes entitled to it absolutely at 18. Trustees have no discretion — they simply hold it.

Used for: grandparents' gifts, junior investment accounts.
Tax: the assets are treated as the beneficiary's from the outset, so they use the child's own allowances. A gift into a bare trust is a potentially exempt transfer — outside your estate after 7 years years.
Watch out: the beneficiary gets everything at 18 and you cannot stop them.

Interest in possession (life interest) trust#

One beneficiary — the "life tenant" — has an immediate right to the income, or to occupy a property, for life. When they die, the capital passes to the "remaindermen".

Used for: providing for a second spouse while guaranteeing children from a first marriage eventually inherit.
Tax: where created on death for a surviving spouse, the trust assets are generally treated as part of the life tenant's estate for inheritance tax.
Watch out: the life tenant and the remaindermen have genuinely competing interests — income now versus capital growth later. Choose trustees who can hold that balance.

Property protection trust#

A life interest trust applied specifically to a share of a home. Each partner leaves their half into trust; the survivor lives there for life; the children take the share afterwards. The workhorse of legitimate care-fee planning.

Full guide, including the joint tenancy trap.

Discretionary trust#

Trustees hold assets for a class of potential beneficiaries and decide who receives what, when and how much. Nobody has a fixed entitlement, which is precisely what makes it useful — and what makes it taxed heavily.

Used for: beneficiaries who are vulnerable, in debt, going through a divorce, or not yet born.
Tax: the relevant property regime — entry charges of up to 20% above the nil-rate band, ten-yearly charges of up to 6%, and exit charges. Income taxed at the top rates.
Also: pair it with a detailed letter of wishes, since trustees are exercising real judgement. More on discretionary trusts.

Disabled person's trust#

A trust for someone who qualifies as a disabled person under the tax rules. It preserves entitlement to means-tested benefits — because the beneficiary does not own the assets — and receives more favourable inheritance tax and capital gains treatment than an ordinary discretionary trust.

Getting the qualifying conditions right matters enormously. This is a specialist job.

Types to be sceptical about#

Choosing between them#

1. Define the problem first. Care fees? Second marriage? A vulnerable beneficiary? Different problems, different trusts.
2. Ask whether a will alone solves it. Often it does.
3. Compare cost against benefit across the whole life of the trust, not just the setup fee.
4. Check the tax treatment of that specific type — they differ enormously.
5. Confirm who the trustees will be and whether they are willing.

Frequently asked questions

Which trust is best for protecting my home?

For a couple who own their home together, a property protection trust in the wills. It is triggered by the first death, protects roughly half the value, and is not vulnerable to the deliberate deprivation rules in the way that a lifetime transfer is.

What is the difference between a discretionary and a life interest trust?

In a life interest trust one person has a defined right — income, or the right to occupy — and the capital passes to others afterwards. In a discretionary trust nobody has a fixed right; the trustees choose. Life interest gives certainty, discretionary gives flexibility, and the tax treatment differs significantly.

Are trusts only for wealthy people?

No. The most common use for an ordinary family — a property protection trust in a will — is about a home worth a few hundred thousand pounds, not great wealth. That said, if your circumstances are simple a trust adds cost and paperwork without adding protection.

Can I have more than one trust?

Yes, and it is common — a property protection trust for the home and a discretionary trust for the residue, for example. Each is assessed separately for tax, and each needs its own administration, so more trusts means more ongoing work.

This is general information, not legal advice. Everyone's situation is different — speak to a qualified adviser before acting. KeepTheLot is an independent information service covering England & Wales. We are not a law firm.

Part of our guide to trusts.