How can trusts protect my family's wealth from inheritance tax?
Published 27 August 2026
More of my clients are asking me about trusts than at any point I can remember. Some have heard the word from a friend, others have read something in the news about changing inheritance tax rules, and most are not entirely sure whether a trust is something that applies to them at all.
A trust is not just for the very wealthy, and it is not as complicated as it sounds once you understand what it is actually for. If you are thinking about how to pass on wealth to children or grandchildren in a way that protects it, this is worth fifteen minutes of your time.
Why more families are looking at trusts now
Inheritance tax used to feel like a problem for other people. As property values have grown and the nil-rate bands have stayed fixed for a long time, more families are finding that their estate sits closer to the threshold than they expected. Add to that the government's plans to bring pension pots within the scope of inheritance tax from 2027, and it is easy to see why more people are asking what they can do ahead of time rather than leaving it to chance.
A trust is one of the tools that can help, though it is not the only one, and it is not right for every family.
What a trust actually does
At its simplest, a trust is a legal arrangement where you, as the person setting it up, place assets under the control of trustees, who manage those assets for the benefit of the people you have chosen, known as beneficiaries. You are effectively separating legal ownership of an asset from who ultimately benefits from it.
This matters for inheritance tax because assets held in certain types of trust can, depending on how the trust is structured and how long ago it was set up, sit outside your estate when it comes to calculating what is owed. The rules here are detailed and depend heavily on the type of trust, the value involved, and timing, so this is not something to set up without proper advice.
Types of trust worth knowing about
There are several different types of trust, and each behaves differently for tax purposes.
A discretionary trust gives trustees flexibility over how and when assets are distributed among a group of beneficiaries, which can be useful where you want control over timing, perhaps because grandchildren are still young.
A bare trust is more straightforward in structure, where the beneficiary has an absolute right to the assets once they reach eighteen, and the assets are treated as belonging to them for tax purposes from the outset.
A life interest trust allows one person, often a surviving spouse, to benefit from an asset such as income from investments during their lifetime, with the underlying capital passing to other beneficiaries afterwards. This is often used in blended families, where someone wants to provide for a second spouse while ultimately protecting an inheritance for children from an earlier relationship.
Which structure suits your family depends entirely on your circumstances, your family relationships, and what you are trying to achieve, so this is very much not a one size fits all decision.
Trusts and investments held within them
Where a trust holds investments rather than cash, it is worth understanding that the value of those investments can go down as well as up, and the amount eventually available to beneficiaries is not guaranteed. Trustees have a duty to manage investments sensibly on behalf of beneficiaries, but this does not remove the underlying risk that markets carry. If a trust is holding cash instead, that cash will lose purchasing power over time as inflation erodes its real value, so the choice of how trust assets are held is worth thinking through carefully alongside the tax planning itself.
Trusts and the 2027 pension changes
The proposed change to bring pension pots within the scope of inheritance tax from 2027 has prompted a number of my clients to look again at how their pensions and other assets fit together as a whole. Trusts do not automatically solve this, and pensions are treated differently to other assets, but for some families, restructuring how wealth is held across pensions, trusts, and other assets can make a meaningful difference to what eventually passes to the next generation. Tax rules in this area are subject to change, and what is beneficial today may look different once the detail of the 2027 changes is confirmed, so this is an area worth revisiting regularly rather than planning once and leaving it.
Is a trust right for your family
A trust is not automatically the right answer. Setting one up has costs, ongoing administration, and legal responsibilities for trustees, and the tax benefits depend entirely on getting the structure right for your specific situation. For some families, other approaches such as gifting during your lifetime or simply reviewing how assets are owned between spouses will achieve the same goal more simply.
What I would say is that if your estate is likely to be liable for inheritance tax, or you have specific concerns about how and when the next generation should receive an inheritance, it is worth having this conversation properly rather than guessing.
When to get advice
Trust planning sits at the intersection of tax, family circumstances, and long term financial planning, and it benefits from being looked at as part of your whole financial picture rather than in isolation. If you are wondering whether a trust could help protect what you want to pass on, I would be glad to talk it through with you.
Trusts are not regulated by the Financial Conduct Authority.
Other pages you may be interested in
Financial steps to take in the first year after losing your partner
How I provide clear, compassionate inheritance tax advice in Liverpool
SJP approved 25/08/2026
