What does a trust actually do?
A trust is a legal arrangement where assets are held by trustees for the benefit of beneficiaries. The person who creates the trust and places assets into it is the settlor. The trustees hold and manage the assets. The beneficiaries benefit from them.
The key feature of a trust is that assets placed into it are no longer legally owned by the settlor. They are held by the trustees for the beneficiaries. This has three important consequences: the assets do not form part of the settlor's estate for probate purposes; they may not be counted as part of the estate for inheritance tax; and they can be protected from claims against the settlor's estate (such as creditors or care fee assessments, in some circumstances).
Trusts are used for many purposes: life insurance, property, savings, investments, pension nominations, and provisions in wills. Not all trusts are complex or expensive. A basic life insurance trust can be set up in 30 minutes at no cost. A property trust held within a will requires a professionally drafted will from a qualified solicitor.
Types of trust: a plain-English guide
There are several types of trust used in the UK, each suited to different purposes. Here is a summary of the most relevant ones for homeowners.
Bare trust (absolute trust)
The simplest type of trust. Named beneficiaries have an absolute right to the assets — the trustees simply hold them until the beneficiary is old enough to receive them (for children) or until a triggering event occurs (such as death for life insurance). Once set up, a bare trust cannot be changed. Commonly used for life insurance, savings for children, and straightforward asset passing.
Discretionary trust
Trustees have full discretion over how and when to distribute assets to a class of potential beneficiaries. No individual beneficiary has a fixed entitlement. This flexibility makes discretionary trusts ideal for blended families, young children, and situations where the settlor's wishes may be difficult to predict in advance. The most common trust type for life insurance in complex family situations, and widely used in wills.
Interest in possession trust
A beneficiary has the right to receive income from the trust assets — or to live in a property held by the trust — during their lifetime. On their death, the underlying capital passes to other beneficiaries. Used in property planning, particularly for married couples who want a surviving spouse to remain in the family home while preserving the property for children from a previous relationship.
Pilot trust
A small trust established to receive future assets — typically multiple life insurance policies. The trust is set up with a nominal sum, and additional policies are assigned to it over time. Useful for people who want all their life insurance policies held under a single trust structure.
Trusts in wills — how they work
Many trusts are created within wills — they only come into existence when the will-maker dies. Will trusts are commonly used to: hold assets for children until they reach a specified age; protect property for children from a first marriage while providing for a second spouse; and manage assets for beneficiaries who cannot manage money themselves.
A discretionary will trust is particularly versatile. The will directs that certain assets pass into a discretionary trust on death, with the testator's spouse, children, and other close family as potential beneficiaries. The trustees — typically the spouse and a close friend or solicitor — then decide how to distribute assets over time.
Setting up trusts within a will requires a professionally drafted will from a qualified solicitor. A DIY will that purports to create a trust is risky — if the trust provisions are incorrectly drafted, they may not be effective. This is one of the most important reasons to use a solicitor for will-writing.
Life insurance in trust — what we can help with
Writing life insurance in trust is firmly within our scope as a protection adviser. We recommend it for every life insurance policy we arrange, and we set it up as part of the application process at no additional charge.
The two trust types used for life insurance are absolute trusts and discretionary trusts (see above). We explain the differences, help you choose the right type, and complete the trust deed with you. The whole process takes around 30 minutes.
Key benefits: the payout bypasses probate (typically 6–12 months delay avoided), the payout does not count as part of your estate for IHT purposes, and your family receives the money within days or weeks of a valid claim being submitted.
Property trusts — what you need a solicitor for
Property trusts — including Family Protection Trusts, Protective Property Trusts, and lifetime trusts holding the family home — are outside the scope of a protection adviser. They require a qualified solicitor or estate planning specialist to set up correctly.
A Family Protection Trust holds the family home for children while giving a surviving spouse the right to live there. It can protect the property from being used to fund care home fees and can prevent sideways disinheritance in blended families.
A Protective Property Trust (sometimes set up within a will) separates a property into two halves. When the first spouse dies, their half passes into trust rather than outright to the survivor — ensuring the children's inheritance is protected if the survivor later remarries or enters a care home.
If you are interested in property trusts, we can refer you to specialist solicitors and estate planning advisers. Please contact us and we will point you in the right direction.
Trusts for children
Children under 18 cannot legally own significant assets in their own name in England and Wales. Trusts are the mechanism for holding assets for them until they are old enough to receive them.
A bare trust for a child holds assets until the child turns 18, at which point they have an absolute right to the assets. This is simple and commonly used for savings, investments, and life insurance payouts intended for children.
A discretionary will trust can specify any age — 21, 25, or 30 are common choices. The trustees manage the assets in the meantime and can make distributions for education, welfare, or housing. This prevents a large inheritance reaching a child before they are ready to manage it responsibly.
Writing your life insurance in a discretionary trust with your children named as potential beneficiaries ensures that a payout can be directed to them through trustees — without probate and without the complication of a child being legally unable to receive a direct payout.
Roger Cooper
CeMAP Qualified Mortgage Adviser | FCA Regulated
Roger has over 15 years of experience as an independent mortgage adviser. CeMAP qualified and FCA regulated, he specialises in complex mortgage cases including self-employed applicants, portfolio landlords, expat mortgages and high-value purchases across Greater London and the Home Counties.
All advice provided by Mortgage International is given by CeMAP qualified advisers regulated by the Financial Conduct Authority.