Trust Creation in the UK — A Complete Guide for Families and Business Owners
Setting up a trust fund is one of the most effective ways to protect family wealth, support vulnerable loved ones, and make sure your assets are used exactly as you intend. They can prove a very useful tool indeed when it comes to family wealth and estate planning. But the rules around trusts can be complex — and choosing the wrong type of trust or drafting unclear terms can create expensive tax consequences, court disputes, or delays in passing assets to your beneficiaries. This guide explains how to set up a trust fund in the UK, how they work, the different types of trust available, and the advantages and disadvantages of using a trust. It also explains how our specialist trust solicitors at Bonallack & Bishop can help you with both trust creation and ongoing administration as professional trustees if required.
To speak to one of our specialist Trusts lawyers, please call FREEPHONE 0800 1404544 or one of our local office numbers [see below] for FREE initial phone advice and a no obligation quotation.
What Is a Trust Fund?
A trust fund is a legal arrangement where you (the “settlor”) transfer assets to trustees, who hold those assets for the benefit of someone else (the “beneficiary”).
Trusts can hold almost any type of asset, including:
- Property
- Savings and investments
- Shares and business interests
- Life insurance proceeds
- Cash gifts
- High-value personal items
Trusts allow you to set legally binding rules about how, when, and for what purpose the assets can be used.
Why Do People Set Up Trust Funds in the UK?
People create trusts for many different reasons. Common motivations include:
- Protecting vulnerable family members who can’t manage money themselves
- Providing for minor children until they reach adulthood
- Protecting assets during second marriages, blended families, or divorces
- Managing inheritance tax (IHT) planning
- Avoiding assets passing outright to a beneficiary who may be financially irresponsible or at risk of exploitation
- Ensuring business continuity by transferring company shares into trust
- Supporting family members over time rather than giving a single large lump sum
A trust fund offers control, protection, and long-term planning options that a standard Will simply cannot achieve on its own.
How to Set Up a Trust Fund in the UK — Step by Step
Setting up a trust fund correctly requires careful legal drafting and a clear understanding of tax rules. Here is the typical process:
1. Decide What You Want the Trust to Achieve
Before any documents are drafted, we help you identify:
- Who the trust is for
- What assets will go into the trust
- How and when the beneficiaries should receive funds
- Whether the trust is intended to last for a limited time or multiple generations
- Any conditions or protections you want to apply
- Who to appoint as trustees to run the scheme
This ensures the chosen trust structure matches your goals.
2. Choose the Right Type of Trust
The UK offers several types of trust, each with their own different rules and tax implications. The most common include:
Bare Trusts (Simple Trusts)
- Assets are held in the name of a trustee, but the beneficiary has the immediate right to them once they turn 18.
- These are often used for young children.
Discretionary Trusts
- With this kind of fund, trustees have discretion over when and how beneficiaries receive funds.
- These are for families needing flexibility — for example, where beneficiaries have varying financial needs or vulnerabilities.
Interest in Possession Trusts
- Under these schemes, a named beneficiary is entitled to income generated by the trust but does not always own the underlying capital.
- They are particularly common in second-marriage and blended family situations.
Protective/Vulnerable Person Trusts
- These are often referred to as special needs trusts.
- They are designed to safeguard assets for beneficiaries with disabilities or long-term care needs.
- They are often set up to handle compensation from personal injury or medical negligence claims, and the principal purpose of these particular vehicles may also be to avoid losing entitlement to means-tested benefits.
- They may qualify for favourable tax treatment if strict rules are met.
Click to read more about how Special Needs Trusts work
Life Interest Trusts (including in Wills)
- These funds allow someone (e.g., a spouse) to live in a property or receive income for life, with capital passing to others later.
But beware – lifetime interest trusts are often oversold, particular by unscrupulous salesmen. They do however have a useful role in certain circumstances.
Click to find out more about Lifetime Interest Trusts – including why these trusts are often oversold and where they can fail
Charitable Trusts
- These vehicles are used for long-term charitable giving and legacy planning.
Selecting the wrong type of trust can result in unexpected tax charges or beneficiaries being unable to access funds when needed, which is why legal guidance is essential.
3. Draft a Legally Sound Trust Deed
The trust deed is the core document that legally creates the trust and sets out:
- The purpose of the trust
- The trustees’ powers
- How and when assets may be used
- Who the beneficiaries are
- Any conditions or restrictions
- How the trust may end or be amended
Our solicitors draft the trust deed in clear legal language so it stands up to tax scrutiny, HMRC requirements, and any future disputes.
4. Appoint Suitable Trustees
You may choose:
- Family members
- Friends
- A professional trustee (such as our firm)
- A combination of both (often the most balanced structure)
Trustees are responsible for managing assets carefully, keeping accounts, and acting in the beneficiaries’ best interests. It is a considerable responsibility. That is why it is so important to choose the right trustees.
Many clients prefer to appoint professional trustees because:
- It avoids family conflicts
- Trustees remain impartial
- Complex investments and decisions are managed correctly
- The trust stays compliant with changing tax laws
- Professional indemnity insurance provides protection
Our experienced team regularly acts as professional trustees for families throughout England and Wales.
5. Transfer Assets Into the Trust
Once the deed is signed, assets can be transferred into the trust. This process must be carried out properly to avoid future disputes or tax complications. Our solicitors can assist with:
- Property transfers
- Investment transfers
- Cash or share transfers
- Trust registration with the HMRC Trust Registration Service (TRS)
6. Register the Trust with HMRC
Almost all UK trusts must be registered with HMRC on the Trust Registration Service (TRS), even if there is no tax immediately due. Failing to register can lead to penalties. We handle this process for you.
7. Ongoing Trust Fund Administration
Setting up the trust fund is only the beginning. Trustees also need to manage:
- Annual tax returns
- Trust accounts
- Beneficiary payments
- Investment reviews
- Legal compliance
- Trustee meetings and documentation
Our specialist solicitors can handle administration for you or act entirely as professional trustees.
Click to read how our Professional Trustees Solicitors could help you.
The Biggest Mistake Parents Make When Setting Up a UK Trust Fund
The most common mistake parents make is setting up the trust without specialist legal advice, often using an online template or DIY document.
This leads to problems such as:
- The wrong type of trust being used for the family’s goals
- Beneficiaries receiving funds too early or too late
- Unexpected inheritance tax, income tax or capital gains tax charges
- The trust deed failing to give trustees the powers they need
- HMRC penalties for incorrect reporting
- Disputes between family members or trustees
A poorly drafted trust can cost far more to fix later than the cost of proper advice at the start.
Can I Set Up a UK Trust Fund to Avoid Inheritance Tax?
A trust cannot be used to simply “avoid” inheritance tax (IHT). UK law is designed specifically to prevent this.
However, trusts can be used as part of a legitimate estate planning strategy to:
- Reduce the overall size of your taxable estate
- Control how lifetime gifts are made
- Protect assets for future generations
- Allow assets to grow outside of your estate
- Manage tax exposure for beneficiaries who are vulnerable or financially inexperienced
For example:
- Gifts into a Bare Trust may fall outside your estate after 7 years.
- Gifts into a Discretionary Trust above the IHT allowance may attract a manageable entry charge, but still achieve long-term planning goals.
- Certain disabled person’s trusts and bereaved minor trusts receive favourable tax treatment.
The key message:
Trusts can be highly tax-efficient, but they are not a loophole to avoid IHT entirely. You must use the correct structure and follow strict HMRC rules.
We work closely with specialist tax advisers where needed to ensure your trust is compliant and optimised.
What Are the Advantages and Disadvantages of a Trust?
Advantages
- Control over how and when assets are used
- Asset protection from future divorce, bankruptcy, or financial mismanagement
- Support for vulnerable or disabled beneficiaries
- Flexibility — especially with discretionary trusts
- Possible inheritance tax benefits depending on the trust type
- Continuity across generations
- Protection of family property, especially in blended families
- Professional management if solicitors act as trustees
Disadvantages
- Complex tax rules – trusts may pay higher income tax or periodic charges
- Ongoing administration costs, including accounts and tax returns
- Risk of disputes if trustees are not carefully chosen
- Penalties for non-registration or incorrect reporting
- Incorrect trusts can create more problems than they solve
Most disadvantages arise only when trusts are set up incorrectly or managed without guidance.
When Should You Use a Solicitor to Set Up a Trust Fund?
The law surrounding trusts is particular complex. Relatively few solicitors really specialise in this area. You should always seek expert professional advice when:
- Large sums of money or property are involved
- Beneficiaries include children, disabled adults, or vulnerable relatives
- You want to control how funds are used over many years
- Tax planning is a key goal
- You want to avoid future disputes in your family
- You need trustees who understand complex legal and tax obligations
Our specialist trust team ensures the trust is created correctly, tax-efficiently, and tailored to your family’s needs.
How Our Specialist Trust Solicitors Can Help
At Bonallack & Bishop, we offer a complete trust service — from initial planning to long-term administration. We can:
Trust Fund Creation
- Advise on the best trust structure for your goals
- Draft a bespoke trust deed
- Ensure the trust complies with UK tax law
- Register the trust with HMRC
- Transfer property and other assets into the trust
Professional Trustee Services
We can act as professional trustees either alone or alongside family members. This ensures:
- Impartial decision-making
- Compliance with legal duties
- Accurate accounts and tax reporting
- Long-term stability for the trust
- Reduced stress and conflict for families
Trust Administration
If you prefer to remain trustee but need professional support, we can help with:
- Annual tax returns
- Trust accounts
- Trustee meeting minutes
- Investment reviews
- Beneficiary distributions
- Ongoing legal advice
Trust Disputes and Variations
Our dispute resolution team can help you if there has been a problem – a trust has been set up incorrectly or is no longer fit for purpose, we can:
- Correct errors
- Apply to the court for variation
- Advise trustees on their duties
- Resolve beneficiary and trustee disputes
Why Choose Our Trust Fund Specialists?
- Over 25 years’ experience in trust law
- Clear, practical advice in plain English
- Fixed-fee options for many trust services
- Full professional trustee service if required
- Long-term support for families across generations
- Collaboration with accountants and financial advisers
Our trust work is led by Elizabeth Webbe, a full member of STEP (the Society of Trust and Estate Practitioners), the recognised international professional body for trust and estate practitioners. Elizabeth has substantial experience in the creation, structuring, and ongoing administration of trusts and has previously delivered specialist trust law training to solicitors nationwide.
By appointing our highly specialist team you can rely on the fact that your trust will be created correctly, administered professionally, and built to protect your family for the long term.
Frequently Asked Questions About Setting Up a Trust Fund in the UK
How much does it cost to set up a trust fund?
Costs vary depending on complexity. Simple trusts may be set up for a fixed fee, while discretionary or high-value trusts require bespoke drafting.
Do I need a Will as well as a trust?
Yes. A trust does not replace a Will. Many trusts are created within Wills, while others are set up during your lifetime.
Can I change a trust once it is created?
Often yes, but only if the trust deed allows it or in limited circumstances with court approval.
Can a trust protect assets from care fees?
Trusts can offer protection when used correctly, but deliberate deprivation of assets rules are strict. Specialist advice is essential.
Can trustees be held personally liable?
Yes. Trustees have legal duties, which is why many families choose professional trustees.
Speak to Our Specialist Trust Solicitors
If you want to set up a trust fund or need help administering an existing one, our expert team is here to help.
Contact Bonallack & Bishop today for clear advice and long-term support.
