The number of people using trusts to manage their money is rising, analysis shows.
According to a Freedom of Information request by RBC Wealth Management, the Trust Registration Service received a flurry of filings last January, the most recent period for which data is available.
Around 10,000 UK-resident trusts were registered that month, as families looked to protect their assets and ensure they can be passed on to future generations.
RBC’s Andrea Tarasheva says: ‘The Christmas period, during which many spend time with family, often encourages reflection on long-term financial planning, including the importance of putting appropriate structures in place.
‘Establishing a trust can be an effective way to protect assets, provide for loved ones in a flexible way, and ensure that wealth is managed and passed on in accordance with one’s wishes for future generations.’
But setting up a trust incurs costs and needs to be done carefully and correctly to ensure all necessary conditions are met – and there are a number of types used for different things.
We explain how trusts work, when to use one, and the potential pitfalls to be aware of.
Trust matters: Setting up a trust can help avoid inheritance tax, or pass money to children
Why are people setting up trusts?
Inheritance tax has become a major concern for wealthier families, particularly those living in more expensive areas in southern England where high house prices can combine with lifetime savings to deliver death duties running into tens or hundreds of thousands of pounds.
Rachel Reeves’ decision to put unspent pension pots within the inheritance tax net from April 2027, has triggered even greater concern – and will push many more families into paying IHT.
Trusts are often set up to manage and distribute assets where there is a good reason for not handing them over outright.
Common motives for families doing this are to avoid inheritance tax, give someone an interest in a property for life, or to pass money to individuals too young, vulnerable or untrustworthy to handle it themselves.
Often people set up a trust to gift assets in their lifetime, while hoping to retain some control over them.
But setting up a trust is not a decision to be taken lightly. It can be time-consuming and expensive to establish one, and trusts can also be costly to close.
A trust is a legal agreement that allows you to pass on and preserve your assets, including shares, money and property, in a tax-efficient way.
The benefit of trusts is that assets left within them aren’t subject to inheritance tax, if you live for seven years after the assets were placed in the trust
There are several different types of trust, and the right option depends on an individual’s circumstances.
The simplest form of trust is a bare trust, which allows trustees to manage assets until a beneficiary reaches adulthood, upon which the beneficiary takes control of all income and capital. This means that the person giving away assets retains no control over them.
This means that another commonly used type of trust is a discretionary trust, which appoints trustees to decide who receives distributions, how much, and when.
Discretionary trusts give the trustees control over how and when income and assets are given to the beneficiaries. They decide what gets paid to the beneficiaries, which beneficiaries are paid when and how often payments are made.
Usually these trusts don’t form part of the beneficiaries’ estates, but there is often a charge on assets put into the trust, exit charges and charges every ten years.
> Read our tax expert Heather Roger’s guide to trusts
As discretionary trusts give some control they are popular with some families. Tarasheva said: ‘As the decision-making power lies with the trustees, there is a degree of control, flexibility and protection which allows adapting to changing circumstances such as family dynamics.
‘By placing assets into trust, an individual can start the process of moving funds outside of their estate while making provisions for family members such as children and grandchildren.
Tarasheva added: ‘When structured appropriately, trusts offer a high level of control and flexibility, allowing people to decide how their wealth is passed on across generations and the timing and recipients of any distributions.
‘One misconception is that the distribution of assets is tied to turning a certain age. More commonly, distributions are set to take place at certain life moments, such as buying a first home or helping with university fees.
‘Moreover, trusts can be structured to support both existing and future beneficiaries, making them a valuable mechanism for long-term, intergenerational wealth planning.’
How do discretionary trusts work?
Currently, an individual can place up to £325,000 into a discretionary trust every seven years without being subject to inheritance tax, provided this allowance has not already been used.
Trustees then control who receives distributions from the trust and when.
Once the assets are in the trust, any future growth sits outside the estate for inheritance tax purposes.
However, Britons considering establishing a trust as part of their financial planning arrangements need to watch out for upcoming tax and rule changes coming into force later this year.
Upcoming changes to consider
Another point to remember is that the laws and tax regime for trusts can change regularly.
Two key upcoming changes need to be considered by anyone contemplating setting up a UK-resident trust, or by anyone who already has one.
From April 2026, a new cap of £2.5million per person will limit the amount of qualifying property that can be placed into a trust without triggering an upfront inheritance tax charge. So, those with qualifying assets may look to make use of this exemption before the cap comes into effect.
Moreover, the £325,000 nil-rate band has not been increased in line with inflation since 2009, and following the November 2025 Autumn Budget, the freeze on the thresholds will be extended by an extra year to April 2031.
As a result, more estates could be dragged into the inheritance tax net for the first time, driving increased interest in tax-efficient strategies like lifetime gifting into trusts.
Tarasheva said: ‘Setting up a trust can be complex and it’s important to understand some of the potential limitations. These include periodic and exit tax charges.
‘As always, tax treatment depends on each individual’s circumstances and may be subject to change in the future, so it is important to seek tax and legal advice when considering using a trust structure.’
A trust might need to be closed if it has outlived its usefulness, or the cost and hassle can no longer be justified, or it is found to be unsuitable, or was simply mis-sold to the settlor.
