When people discuss “setting up a trust,” they are often talking about very different legal engines under the same hood. In England and Wales, a trust is essentially a relationship where one person (the trustee) holds assets for the benefit of another (the beneficiary). However, the specific type of trust you choose dictates who has the final say, how much protection the assets have, and how likely the arrangement is to face a legal challenge later.
At Judge Law, we often see clients who feel overwhelmed by the technical jargon. The legal differences are not just “fine print”, they determine whether your children can access their inheritance at 18 or 25, whether a surviving spouse can stay in the family home, and how much power your trustees actually wield. While GOV.UK’s overview of trust types provides a basic public baseline, a deeper legal understanding is required to ensure your intentions are actually enforceable.
Quick Comparison: Control vs Entitlement
Before diving into the specifics, it is helpful to see how these structures stack up against each other regarding decision-making and legal risk.
| Trust Type | Who Controls Decisions? | Beneficiary Rights | Created By | Typical Legal Risks |
|---|---|---|---|---|
| Bare Trust | Trustees hold title but must act on the beneficiary’s instructions. | Fixed entitlement; usually a right to transfer at age 18. | Trust deed or Will. | Misunderstanding of “control”; lack of discretion once the beneficiary is of age. |
| Discretionary Trust | Trustees exercise full discretion within the rules of the deed. | Potential entitlement based on trustee choice; no absolute right to income. | Trust deed or Will. | Class uncertainty; “Letter of Wishes” conflicts; allegations of trustee bias. |
| Interest-in-Possession | Trustees manage assets; “Life Tenant” has income/occupation rights. | Entitlement to income as it arises; capital often reserved for others. | Trust deed or Will. | Occupation/maintenance conflicts; stepfamily disputes over capital vs income. |
| Will Trust | Executors/Trustees run the trust as per the deceased’s Will. | Depends on the specific structure (Bare, Disc, etc.) chosen in the Will. | The Will itself. | Will invalidity (Section 9 Wills Act 1837); drafting errors; executor conflict. |
| Trust of Land (TLATA) | Trustees of land; courts can intervene under TLATA 1996. | Beneficiaries can apply to the court for orders regarding the land. | Co-ownership or express declaration. | Forced sale disputes; creditor pressure; section 14/15 court applications. |
Bare Trusts
A bare trust is the simplest legal structure available. In this setup, the assets are held in the name of the trustee, but the beneficiary has an absolute and immediate right to both the capital and the income.
From a legal perspective, the trustees’ role is largely administrative. They do not have the power to decide “if” or “when” a beneficiary receives the money; they are simply holding the “legal title” while the “beneficial interest” sits entirely with the beneficiary.
The Legal Trap: The most common issue we see with bare trusts involves the age of entitlement. In England and Wales, a beneficiary becomes entitled to the trust assets at age 18. Many parents set up these trusts thinking they can “hold the keys” until the child is more mature, perhaps 21 or 25. However, under a bare trust, once the beneficiary hits 18, they can legally demand the transfer of the assets. If the trustee refuses, they may be in breach of their fiduciary duties. For more on these responsibilities, see our guide on trustee roles and duties explained.
Discretionary Trusts
If you require flexibility, a discretionary trust is often the preferred legal route. Here, no single beneficiary has a fixed right to the trust’s assets or income. Instead, the trustees are given a “power of selection” to decide which members of a defined “class” of beneficiaries should receive help, when, and in what amount.
Defining the Beneficiary Class Clearly
One of the most frequent causes of trust disputes is an “uncertain” beneficiary class. For a discretionary trust to be legally valid, the trustees must be able to identify who is and isn’t a beneficiary. If the description is too vague (e.g., “my friends”), the trust could be declared void for “uncertainty of objects.” Professional drafting ensures the class, whether it be “my grandchildren” or “the descendants of X”, is legally watertight.
Discretion and Governance Expectations
While trustees have “discretion,” they do not have “absolute power.” Their decisions are governed by the Trustee Act 2000, which imposes a statutory duty of care. Trustees must:
- Act within the powers granted by the trust deed.
- Consider the needs of all beneficiaries.
- Avoid conflicts of interest.
- Document their decision-making process.
Disputes often arise when a “Letter of Wishes” (a non-binding document left by the person who created the trust) conflicts with the trustees’ current assessment of a beneficiary’s needs. Balancing these competing interests requires a high level of skill and care during the drafting of the trust deed.
Interest-in-Possession (Life Interest) Trusts
An interest-in-possession trust is a common tool in estate planning, particularly for blended families. In this structure, a specific beneficiary (the “Life Tenant”) has a legal right to the income from the trust (or the right to live in a property) during their lifetime. When they pass away, the “remaindermen” (often the children from a first marriage) receive the capital.
The legal complexity here lies in the friction between the Life Tenant and the remaindermen. For example, if the trust holds a property, who is responsible for the roof repairs? If the trust holds stocks, should the trustees invest for “high income” (benefiting the Life Tenant) or “capital growth” (benefiting the children)? Clear drafting is the only way to prevent these predictable family conflicts.
Will Trusts (Creation by Will)
A “Will Trust” is not actually a distinct category of trust in terms of its operation; rather, it refers to the method of creation. You can create a bare, discretionary, or life interest trust within your Will. It only comes into existence upon your death.
The foundational legal risk for any Will trust is the validity of the Will itself. Under Section 9 of the Wills Act 1837, a Will must be in writing, signed by the testator, and witnessed by two people simultaneously. If these formalities fail, the trust fails with it. This is why many “DIY” trusts end up in the common trust mistakes and red flags category.
Trusts of Land and Family Property (TLATA Context)
Whenever a trust involves a home or land, the Trusts of Land and Appointment of Trustees Act 1996 (TLATA) comes into play. This is a specialized area of law that deals with disputes over who can live in a house and when it should be sold.
Under Section 14 of TLATA, any trustee or person with an interest in the property can apply to the court for an order. The court then looks at Section 15 factors, such as:
- The intentions of the person(s) who created the trust.
- The purposes for which the property is held.
- The welfare of any minor who occupies the land.
- The interests of any secured creditors (like mortgage lenders).
This is a major reason why trusts involving family homes require expert oversight. A structure that looks perfect for tax planning may fall apart if a relationship breaks down and one party uses TLATA to force a sale against the other’s wishes.
Choosing the Structure: Legal Questions to Ask
Choosing the right type of trust is about balancing protection with practicality. Before committing to a structure, we recommend asking these core legal questions:
- Who needs control? Do you trust the beneficiaries to manage the money at 18, or do you need professional trustees to hold the reins?
- Is the beneficiary class fixed? Are you providing for people already born, or do you want to include future grandchildren?
- What is the underlying asset? Is it cash, which is easy to divide, or a family home, which presents occupation challenges under TLATA?
- What is the “end game”? How do you envision the trust lifecycle ending?
FAQs
Q: What is the simplest form of trust?
A: A bare trust is generally the simplest, as the trustee’s role is purely to hold the assets until the beneficiary is of legal age (18 in England and Wales).
Q: Can a discretionary trust protect assets from a beneficiary’s divorce?
A: While a discretionary trust can offer a layer of protection because the beneficiary has no “absolute right” to the assets, family courts have broad powers. The trust must be robustly drafted and managed to withstand such scrutiny.
Q: Is a will trust different from a lifetime trust?
A: Yes. A lifetime trust (settlement) is created via a deed while you are alive. A will trust is written into your Will and only triggers upon your death.
Q: What happens if a trustee dies?
A: Usually, the trust deed will contain provisions for appointing new trustees. If it doesn’t, the Trustee Act 1925 provides statutory powers to replace them.
Q: Why do I need a solicitor for this?
A: Trusts are complex legal instruments. Errors in drafting can lead to the trust being declared void, unexpected tax bills, or expensive litigation between family members.
If you are considering setting up a trust or need to review an existing arrangement, you can explore our Trusts Overview and FAQs or contact us to discuss which structure fits your family circumstances.
Disclaimer: This article provides general legal information regarding the laws of England & Wales. It does not constitute legal, tax, or accounting advice. Trusts have significant tax and reporting consequences that should be discussed with a qualified professional.
