Different Types of Trusts Explained: A Friendly Guide for Families

Trusts can sound complicated, formal and even a little intimidating. In simple terms, they help you look after assets for someone else’s benefit. You can use a trust to protect money, property or investments. You can also use one to manage inheritance for children, support vulnerable loved ones, or make sure your wishes are followed after you pass away. For many families, trusts play an important role in estate planning. They can offer structure, flexibility and reassurance, especially when family circumstances are more complex. However, not all trusts work in the same way. The right trust depends on what you want to achieve, who you want to benefit, when they should benefit, and how much control you want your trustees to have.

What Is a Trust?

A trust is a legal arrangement where trustees look after assets for beneficiaries. The person who creates the trust is known as the settlor. The people who manage the trust are called trustees. The people who benefit from the trust are called beneficiaries. For example, you might leave money in trust for your children until they reach a certain age. You might also place a share of your home into trust so your spouse or partner can continue living there, while protecting part of the property for your children in the future. You can create a trust during your lifetime or include one in your Will. A trust created through a Will is usually known as a Will trust.

Why Do People Use Trusts?

People use trusts for many reasons. Some want to protect inheritance for children or grandchildren. Others want to support a vulnerable person without giving them full control of a large sum of money. Some use trusts to provide for a surviving spouse while protecting assets for children from a previous relationship. Trusts can also help when you have concerns about a beneficiary’s age, financial responsibility, relationship difficulties, disability, care needs or vulnerability. In the right circumstances, trusts may also support inheritance tax planning. However, you should not see a trust as a simple way to avoid tax. Trusts come with legal, tax and administrative responsibilities, so proper advice is essential.

Bare Trusts

A bare trust is one of the simplest types of trust. The beneficiary has an absolute right to the assets in the trust. The trustees hold the assets for the beneficiary, but they usually have little or no discretion over who receives them. Bare trusts often help children or young people. For example, a grandparent might leave money to a grandchild, with trustees managing it until the child reaches adulthood. Once the beneficiary reaches the correct age, they can usually ask the trustees to transfer the assets to them. A bare trust offers simplicity. However, it gives very little long-term control. If you feel a beneficiary may not manage money responsibly at 18, a bare trust may not be the best option.

Discretionary Trusts

A discretionary trust gives trustees flexibility. The trustees decide which beneficiaries should benefit, how much they should receive and when they should receive it. This can help when family circumstances may change over time. For example, you may want to provide for children, grandchildren or other relatives, but you may not know who will need the most help in the future. A discretionary trust allows trustees to respond to changing circumstances, such as illness, divorce, financial difficulty or vulnerability. It can also help protect assets from passing directly to someone who may struggle to manage money. Because trustees hold significant responsibility, you should choose them carefully. They need to be sensible, trustworthy and willing to act in the beneficiaries’ best interests.

Interest in Possession Trusts

An interest in possession trust gives one beneficiary the right to receive income from the trust. The trust then protects the underlying capital for someone else. The person receiving the income is often called the life tenant. For example, you might leave investments in trust so your spouse receives the income during their lifetime. After they pass away, the capital could then pass to your children. This type of trust can help you provide for one person now while protecting the long-term value of the assets for others. Families often use interest in possession trusts when there are children from a previous relationship, or when they want to balance the needs of a surviving partner with the interests of other beneficiaries.

Life Interest Trusts

A life interest trust is a common form of interest in possession trust. People often include this type of trust in their Will to support a surviving spouse, civil partner or partner. It can allow that person to benefit from an asset during their lifetime, while making sure the asset later passes to other chosen beneficiaries. A property life interest trust is a common example. It may allow a surviving partner to stay in the home for the rest of their life, while protecting the deceased person’s share of the property for their children. This can work well for blended families, second marriages, or anyone who wants to support a partner while keeping control over where their share of the estate eventually goes.

Property Protection Trusts

A property protection trust helps protect a share of the family home within a Will. Usually, each person owns a defined share of the property as tenants in common. When the first person dies, their share goes into trust. The surviving partner may continue living in the property, move home, or benefit from the property under the terms of the trust. The main aim is usually to protect the deceased person’s share for their chosen beneficiaries, often their children. This type of trust can provide reassurance if you worry about remarriage, relationship changes, sideways disinheritance or future changes to a surviving partner’s Will. A property protection trust needs careful drafting and must fit with how you own your property.

Flexible Life Interest Trusts

A flexible life interest trust combines security with flexibility. It can allow a surviving spouse or partner to receive income or live in a property. It can also give trustees power to release capital if needed. This can help when you want to provide for your spouse or partner but still allow trustees to adapt if circumstances change. For example, the survivor may need funds for care, downsizing, home adaptations or other major life events. A flexible life interest trust can offer more options than a basic life interest trust. However, it needs clear drafting so trustees understand exactly what they can and cannot do.

Accumulation Trusts

An accumulation trust allows trustees to build up income inside the trust instead of paying it out straight away. The trustees can add that income to the trust capital and use it later. This can help when beneficiaries are young or when they should not receive income immediately. For example, trustees might hold and grow money for a child until they reach a certain age. Accumulation trusts can support long-term planning, but they also bring tax and administration duties. You should set them up with proper advice.

Mixed Trusts

A mixed trust combines features of more than one type of trust. For example, one part of the trust may give a beneficiary a right to income, while another part gives trustees discretion over payments. This can help when a family has different needs. One beneficiary may need regular income, while another may need flexible support. Mixed trusts can be useful planning tools, but they can also become complex. Clear drafting and careful administration are essential.

Trusts for Children

Trusts often help parents protect inheritance for children. A Will can say that trustees should hold money or property until a child reaches a certain age. Without this planning, a child may inherit at 18, which many parents feel is too young for a significant sum. A trust helps trustees manage the money responsibly and use it for the child’s benefit. This could include education, housing, health, maintenance or general support. For parents with young children, a trust within a Will can sit alongside the appointment of guardians. Together, they help protect both the children’s care and financial future.

Bereaved Minor Trusts

A bereaved minor trust is a specialist trust for a child who has lost a parent. Parents often use this type of trust when they leave assets to their own child and the child becomes fully entitled by the age of 18. These trusts can receive favourable tax treatment in certain circumstances, but the rules are specific. They are most relevant for parents who want to plan how their estate should pass to young children if they die before the children reach adulthood.

18-to-25 Trusts

An 18-to-25 trust can hold assets for a young person beyond age 18, but only up to age 25. This can help when parents feel that 18 is too young for a child to receive their full inheritance. For example, a Will might say that a child should inherit at 21 or 25 instead. Parents often use these trusts to give children more time to mature before receiving significant assets. However, tax implications may apply depending on how the trust works and when trustees distribute the assets.

Vulnerable Beneficiary Trusts

A vulnerable beneficiary trust helps support someone who is disabled or otherwise vulnerable. This type of trust can protect assets while allowing trustees to manage money for the person’s benefit. It can help when a beneficiary cannot manage money themselves, faces a risk of financial abuse, or needs long-term support. In some cases, special tax treatment may apply. However, the rules are detailed, and trustees must manage the trust correctly. Families considering this type of trust should always take specialist advice.

Disabled Person’s Trusts

A disabled person’s trust provides financial support for a disabled beneficiary. It can hold money, property or other assets for that person’s benefit. Trustees then manage those assets responsibly on their behalf. This can help parents or relatives who want to leave inheritance to a disabled loved one but feel concerned about giving them direct control. It may also help make sure funds last and are used appropriately. Disability, benefits, tax and care considerations can overlap, so professional guidance is especially important.

Settlor-Interested Trusts

A settlor-interested trust allows the person who created the trust, or their spouse or civil partner, to benefit from it. These trusts can help in some situations, but they need careful thought. Tax rules often treat them differently. For example, if you set up a trust but still benefit from the assets, HMRC may not treat the arrangement in the same way as a full gift. You should not enter into this type of trust casually, especially if tax planning forms part of your reason for creating it.

Pilot Trusts

A pilot trust is usually created during someone’s lifetime with a small initial amount. The person may then arrange for more assets to go into the trust later, often through a Will or pension death benefit nomination. People have used pilot trusts in estate planning for flexibility. However, tax rules have changed over time, so these trusts need careful consideration. They do not suit everyone. You should only use one when there is a clear planning reason.

Will Trusts

A Will trust is not one single type of trust. It simply means a trust created by your Will when you die. A Will trust could be a discretionary trust, life interest trust, property protection trust, bereaved minor trust or another type of trust. It all depends on how your Will is drafted. Parents, couples, blended families, homeowners and people with complex family circumstances often use Will trusts. A well-drafted Will trust can provide clarity, protection and flexibility for your loved ones.

Lifetime Trusts

A lifetime trust is created while you are alive, rather than through your Will. You may transfer money, property or investments into the trust during your lifetime. Lifetime trusts can help in some estate planning situations. However, they can also create immediate tax, reporting and administration responsibilities. Some people see them as a simple way to protect assets, but the rules are often complex. You should take advice before placing assets into a lifetime trust.

Trustees: Choosing the Right People

The success of any trust depends heavily on the trustees. Trustees manage the trust assets, follow the terms of the trust, act in the beneficiaries’ best interests and keep proper records. They may also need to deal with tax and registration duties. You should choose people who are reliable, organised, sensible and able to make balanced decisions. Many people choose trusted family members, close friends or professionals. In some cases, a mix of personal and professional trustees works well, especially if the trust may last for many years or hold significant assets.

Do Trusts Need to Be Registered?

Many trusts need to be registered with HMRC through the Trust Registration Service. The rules depend on the type of trust, whether it is taxable, when it was created and whether any exclusions apply. Trustees must understand and meet any registration duties. This is why trustees need to understand their role from the start. A trust is not simply a document that can be signed and forgotten. It may need ongoing administration, record keeping, tax reporting and regular review.

Are Trusts Only for Wealthy Families?

No. Trusts are not only for wealthy families. They can help many ordinary families too. A trust might suit you if you own a home, have young children, are in a second marriage, have children from a previous relationship, want to protect a vulnerable beneficiary, or want more control over how someone receives inheritance. The value of a trust is not just about tax. In many cases, the real benefit is peace of mind. A trust can help you protect your assets and support your loved ones in a structured way.

Which Type of Trust Is Right for You?

The right trust depends on your circumstances and goals. If you want to leave money to a child until adulthood, a bare trust may suit you. If you want flexibility, a discretionary trust may work better. If you want to provide for a spouse while protecting assets for children, you may want to consider a life interest trust or property protection trust. If you want to support a disabled or vulnerable person, a vulnerable beneficiary trust or disabled person’s trust may be more suitable. Start with your goal first. Once your wishes are clear, the right legal structure can be built around them.

Common Mistakes to Avoid

One common mistake is assuming all trusts work in the same way. They do not. Another mistake is choosing trustees without thinking carefully about whether they can handle the role. Some people also believe that putting assets into trust automatically avoids inheritance tax or care fees. This is not the case. Trusts need proper drafting, clear reasons and careful administration. Poorly planned trusts can create confusion, disputes and unexpected tax issues. A trust should form part of a wider estate planning conversation, not act as a quick fix.

How Westfield Wills Can Help

At Westfield Wills, we help families understand their options and put the right planning in place. You may want to protect your children’s inheritance, provide for a spouse or partner, support a vulnerable loved one, or make sure your wishes are clearly set out. Whatever your circumstances, we can guide you through the different types of trusts in a clear and supportive way. Trusts can seem complicated at first, but the right advice makes them much easier to understand. They can also become a valuable way to protect the people and assets that matter most.

Final Thoughts

Trusts are not one-size-fits-all. Each type of trust has its own purpose, benefits and responsibilities. The right trust can offer protection, flexibility and peace of mind. The wrong trust, or a poorly drafted one, can create problems later. If you are thinking about including a trust in your Will or setting one up during your lifetime, take advice before making decisions. Careful planning now can make life much easier for your loved ones in the future.

Important Information

This article provides general information only. It should not be treated as legal, tax or financial advice. Trust rules can be complex, and the right approach will depend on your personal circumstances. You should seek appropriate professional advice before creating, changing or relying on any trust arrangement.

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