How trusts work for estate and care-fee planning
By CareFinder Team · Published 2026-06-30 · Last reviewed 2026-09-18
A trust separates who legally owns assets (the trustees) from who benefits (the beneficiaries). Trusts can help pass on wealth, protect vulnerable people and, in some cases, reduce Inheritance Tax. They are a poor tool for avoiding care fees: in England, putting assets into a trust to avoid care charges can be treated as deprivation of assets, with no time limit.
A trust is a legal arrangement where one person or group, the trustees, holds and manages assets for the benefit of others, the beneficiaries. Trusts are useful for passing on wealth in a controlled way, protecting people who cannot manage money, and sometimes for Inheritance Tax planning. They are not a reliable way to avoid care home fees, and a trust set up for that purpose can be ignored by the council.
This article explains how trusts work in England and Wales, with notes on the rest of the UK, so you can have an informed conversation with a solicitor.
Who is involved in a trust?
- The settlor puts assets into the trust, during their lifetime or through their will.
- The trustees become the legal owners and manage the assets. They must follow the trust deed and act in the beneficiaries' interests.
- The beneficiaries benefit from the trust, by receiving income, capital, or the use of an asset such as a home.
What are the main types of trust?
According to GOV.UK's guide to types of trust:
- Bare trust: assets are held in the trustee's name, but the beneficiary is entitled to all the capital and income once they are 18 or over.
- Interest in possession trust: a beneficiary is entitled to the income as it arises, or to live in a property, while someone else may receive the capital later.
- Discretionary trust: trustees decide who among a group of beneficiaries receives income or capital, and when.
- Trusts for vulnerable people: trusts for a disabled person or a bereaved child can receive special tax treatment.
- Settlor-interested trust: the settlor, or their spouse or civil partner, can benefit. These are taxed differently.
Where do trusts appear in family planning?
Will trusts
A trust written into a will takes effect on death. A common example is a property trust in a will, where a couple own their home as tenants in common and each leaves their share in trust. The surviving partner can usually live in the home for life, and the share eventually passes to the children.
This can help keep a share of the home for children if the survivor remarries, and in some cases affects how the survivor's own care is funded, because the share held in trust is not theirs. It needs careful drafting by a solicitor and genuine reasons beyond avoiding care fees.
Lifetime trusts
Assets can be put into trust while the settlor is alive, for example to provide for grandchildren's education or protect a beneficiary who is vulnerable or in a difficult marriage.
Life insurance in trust
Writing a life insurance policy in trust is a simple, common use. The payout goes to the trustees, not the estate, so it can reach the family faster and may fall outside the estate for Inheritance Tax.
How are trusts taxed?
Trusts have their own tax rules for Inheritance Tax, Income Tax and Capital Gains Tax.
For Inheritance Tax, GOV.UK explains that most trusts are "relevant property" trusts, and:
- Transfers into most trusts are charged at 20% on the amount above the Inheritance Tax threshold, taking into account other chargeable gifts made in the previous seven years.
- If the settlor dies within seven years of the transfer, more tax can become due, up to the full 40% rate.
- There can be a charge of up to 6% at each ten-year anniversary of the trust, and an exit charge when assets leave it.
- If the settlor gives something to a trust but continues to benefit, such as giving away their home but carrying on living in it, it is a gift with reservation and still counts as part of their estate.
For 2026/27 the Inheritance Tax threshold is £325,000, and it can be higher when a home is left to children or grandchildren. Many estates never pay Inheritance Tax, so a trust may add cost and complexity without any tax saving.
Registering a trust
Most UK trusts, even those with no tax to pay, must be registered with HMRC's Trust Registration Service, usually within 90 days of being created. Some trusts, such as many life insurance trusts, are excluded. Missing the deadline can lead to a penalty.
Can a trust protect a home from care fees?
This is where many families are misled. In England, the Care and Support Statutory Guidance lists putting assets into a trust that cannot be revoked as a common form of deprivation of assets.
If the council decides that avoiding care charges was a significant motivation at the time the trust was set up, it can:
- Assess the person as if they still owned the asset
- In some cases, seek to recover charges from the person who received the asset
There is no fixed time limit. The council considers the timing and whether the person could reasonably have expected to need care. A trust set up years earlier, when the person was well and for clear family reasons, is on much firmer ground than one set up after a diagnosis.
Be especially cautious of firms selling "asset protection trusts" with promises that a home will be safe from care fees. Ask who benefits, what it costs to set up and run, and get independent advice from a solicitor who is not selling the product.
Are the rules different outside England?
Wales, Scotland and Northern Ireland all have rules that let councils or Health and Social Care Trusts treat deliberately disposed assets as still belonging to the person. Trust law in Scotland also differs from England and Wales. Take advice from a solicitor qualified in the relevant nation.
This article is general information, not legal or tax advice. Trusts are hard to undo, so get advice from a solicitor experienced in wills, trusts and later-life planning before setting one up.
Frequently asked questions
Can I put my house in trust and keep living in it?
You can, but for Inheritance Tax it is likely to be a gift with reservation, so the home still counts in your estate. For care fees, the council may treat it as deprivation of assets if avoiding charges was a significant reason.
Are trusts only for wealthy families?
No. Simple trusts are used for life insurance, for children who inherit young, and for disabled beneficiaries who may lose means-tested benefits if they inherit directly.
What does it cost to run a trust?
There are set-up fees and often ongoing costs for accounts, tax returns and professional trustees. Some trusts pay Income Tax at higher rates than individuals. Ask for a written estimate before proceeding.
Can a trust be changed or cancelled?
It depends on the trust deed. Many trusts cannot be revoked once made, which is why careful advice beforehand matters.
Do trustees have legal duties?
Yes. Trustees must follow the trust deed, act in the beneficiaries' interests, keep proper records, and meet registration and tax obligations.
Key takeaways
- A trust separates legal ownership (trustees) from benefit (beneficiaries).
- Common types are bare, interest in possession and discretionary trusts.
- Transfers into most trusts can trigger Inheritance Tax charges, and most trusts must be registered.
- Using a trust to avoid care fees can be treated as deprivation of assets, with no time limit.
- Get independent legal advice before setting up any trust.