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Trust

A trust, in its simplest form, is an arrangement. One person holds something for the benefit of another. That is the whole of it. Before statute, before equity, before the courts of Chancery developed the law of trusts into the sophisticated framework it is today — the arrangement existed. A man or woman who held something on behalf of another was bound to honour that obligation. Not because a statute said so. Because the obligation was real.

What a trust is

Fact

A trust is a legal arrangement under which one person — the trustee — holds assets on behalf of another — the beneficiary — in accordance with the intentions of the person who created the arrangement — the settlor. The trustee holds legal title to the assets. The beneficiary holds the beneficial interest — the right to benefit from those assets in the way the settlor intended. These are two distinct things — legal ownership and beneficial ownership — held by different people, for different purposes.

A trust is not a legal entity in the way a company is. It cannot own property in its own name, enter contracts in its own right, or be sued as an entity. The trustees act — in their capacity as trustees — and it is they who own the legal title and carry the legal responsibility. The trust is the arrangement. The trustees are the people who give it effect.

Observation

It is worth pausing on this. Every other structure in this series — the sole trader, the partnership, the limited company, the LLP — is either a person in law or a collection of persons. A trust is neither. It is an arrangement. A relationship of obligation between parties. This is what makes it one of the most flexible, most enduring, and most widely used legal structures in existence. It is not constrained by the requirements of incorporation. It does not need a registrar. It does not need a government to recognise it. It needs three things — and three things only.

The three certainties

Fact

For a trust to be valid in English law, three certainties must be present. These are not statutory requirements invented by Parliament. They are principles developed by courts over centuries — and they reflect what a trust, at its most fundamental, requires in order to exist and be enforceable.

1. Certainty of intention. The settlor must clearly intend to create a trust — not merely express a wish, impose a moral obligation, or make a request. The language must be imperative, not precatory. "I give my house to my son to hold on trust for my grandchildren" creates a trust. "I hope my son will look after my grandchildren" does not. The intention must be clear from the words used and the circumstances in which they were used.

2. Certainty of subject matter. The property held on trust must be identifiable. A trust over "some of my shares" fails — because it is not clear which shares are held on trust and which are not. A trust over "my shares in XYZ company" is clear. The subject matter must be defined with sufficient certainty that the trustee knows what they hold and the beneficiary knows what they are entitled to.

3. Certainty of objects. The beneficiaries must be identifiable — either as specific individuals or as a sufficiently defined class. A discretionary trust for "my children and grandchildren" is clear enough. A trust for "those I wish to benefit" is not — because no one can establish who falls within the class. The objects must be defined with sufficient certainty that the trustees can know who they are administering the trust for.

Observation

Where these three certainties exist — genuine intention, identifiable subject matter, identifiable beneficiaries — the trust exists. Not because a statute created it. Because the arrangement is real. English law recognises it. English courts will enforce it. But the recognition and enforcement are a consequence of the arrangement, not its cause. The arrangement comes first.

Trustees — who, how many, and why it matters

Fact

A trustee is the person who holds legal title to the trust assets and is responsible for administering the trust in accordance with the trust deed and in the interests of the beneficiaries. The role carries real legal responsibilities — and choosing the right trustees is one of the most important decisions in establishing any trust arrangement.

Any person over the age of 18 with mental capacity can act as a trustee. There is no requirement for a trustee to be a professional — a trusted family member, friend, or adviser can act. A corporate body can also act as trustee — professional trust companies and certain financial institutions offer trustee services, providing continuity and expertise where the trust assets are significant or complex.

Fact

There is no legal maximum number of trustees for most trusts — though for trusts of land, the maximum number of trustees who can hold legal title is four. There is no minimum number either — a sole trustee can act, provided the trust does not hold land, where at least two trustees are required to give a valid receipt for the proceeds of sale. In practice, having at least two trustees is advisable for most arrangements — not because the law requires it, but because a sole trustee acting alone has no oversight, and any decision they make is unilateral. Two or more trustees provide a check on each other.

Observation

The choice of trustee is the choice of who carries the arrangement. A trust is only as good as the people administering it. A trustee who is honest but incompetent may fail to protect the assets. A trustee who is competent but dishonest may exploit the position. A trustee who is both honest and competent but unavailable — through illness, distance, or competing demands — may fail the beneficiaries simply through neglect. The ideal trustee is someone who understands the responsibility they are taking on, who has the time and the willingness to fulfil it, and who will always put the beneficiaries' interests above their own.

Observation

For significant or long-term trust arrangements — particularly those holding property, investments, or business assets — the appointment of a professional trustee alongside family members is worth considering. A professional trustee brings expertise, continuity, and independence. They are unlikely to die, lose capacity, or move abroad at an inconvenient moment. They are regulated and insured. And they have no personal interest in the trust assets that might cloud their judgment. The cost of a professional trustee is a factor — but weighed against the value of the assets held and the duration of the trust, it is often a small price for the protection it provides.

Fact

Trustees can be changed. The Trustee Act 1925 provides mechanisms for the retirement and appointment of trustees — and the trust deed itself should include provisions for how trustees are replaced when they die, lose capacity, retire, or are removed. A trust that has no living, capable trustees is not a trust that has failed — it is a trust that needs new trustees appointed. The mechanism for doing so should be clear in the trust deed before it is ever needed.

Does a trust have to be governed by UK law?

Observation

This is a question worth sitting with. A trust, as an arrangement, does not require UK law to exist. The obligation of one person to hold something for the benefit of another is not created by statute — it predates statute. In that sense, a trust can exist independently of any legal system's recognition of it.

But recognition and existence are different things. For UK taxpayers, and for a trust to be enforceable in UK courts, the practical position is that English law must govern — or at least that the trust must be structured in a way that the English legal system will recognise and give effect to. HMRC looks at the residence of the trustees, the governing law specified in the trust deed, and the domicile of the settlor when determining how to treat the trust for tax purposes. A trust governed by foreign law, with foreign trustees, and a UK-domiciled settlor, will still be subject to UK tax in most circumstances. The law's reach does not depend on the governing law chosen — it depends on the connection to the UK.

What the choice of governing law does determine is which courts have jurisdiction to interpret and enforce the trust, and which body of trust law applies to questions of trustee duties, beneficiary rights, and validity. For most UK-based arrangements, English law is the natural and appropriate choice. For those with international assets, complex cross-border positions, or specific planning objectives, other jurisdictions are available — and used.

Statutory trusts versus private trusts

Fact

English trust law is largely built on statute and case law — the Trustee Act 1925, the Trustee Act 2000, the Trusts of Land and Appointment of Trustees Act 1996, and centuries of equity cases that have shaped how trusts operate, what trustees can and cannot do, and how beneficiaries' rights are protected. A trust created under English law — governed by this framework — is a statutory trust in the sense that it operates within and benefits from the protections and structures that statute and case law provide.

A private trust is not a separate legal category — rather, it is a description of a trust that operates privately, between parties, outside the public domain. All express trusts — trusts deliberately created by a settlor — are private arrangements. They are not registered. They are not publicly available. They are not subject to public oversight in the way a company is. The trust deed is a private document between the settlor, the trustees, and the beneficiaries.

Observation

The distinction worth drawing is between a trust that operates within the English statutory framework — benefiting from its protections, enforceable in English courts, recognised by HMRC — and an arrangement that has the characteristics of a trust but sits outside any particular legal system's formal recognition. The latter may exist as a matter of obligation and intention — the arrangement is real — but without the framework of a recognised legal system behind it, enforcement depends entirely on the integrity of the parties involved rather than on any external mechanism.

For practical estate planning purposes, the statutory framework matters. A trust deed drafted under English law, with properly appointed trustees, a clear trust deed, and the three certainties present, is enforceable, taxable in a defined way, and interpretable by English courts if disputes arise. This is why, for UK taxpayers and UK assets, English law is the foundation on which trust arrangements are built — not because the arrangement cannot exist otherwise, but because the framework provides the certainty and enforceability that makes the arrangement work in practice.

It is also worth noting that a man or woman who wishes to put in place a private trust arrangement — outside the formal statutory framework — is free to do so. The arrangement can exist on the basis of the three certainties alone, between parties who understand and accept the obligations involved. Where the three certainties are genuinely present, equity may still recognise and enforce the arrangement — the principles of equity that gave rise to trust law in the first place do not disappear simply because a formal deed was not used. But a private trust arrangement is only as good as the people within it, and only as enforceable as the clarity of the arrangement allows. Without a formal deed, without the statutory framework of trustee powers and duties, and without defined mechanisms for resolving disputes, the arrangement is harder to interpret, harder to enforce, and more dependent on the court's willingness to find the necessary certainties in the evidence available. The integrity, competence, and honesty of the trustees matters enormously — because the clearer and more formal the arrangement, the less work the court has to do if things go wrong. The less formal it is, the more everything depends on the character of the people carrying it.

Types of trust

Fact

There are many different types of trust — each with different characteristics, different tax treatment, and different uses. The main categories are:

• Bare trust. The simplest form. The trustee holds assets for a beneficiary who is absolutely entitled to them — there is no discretion, no conditions, and no flexibility. The beneficiary can demand the assets at any time once they reach the age of 18. The assets are treated as belonging to the beneficiary for tax purposes. Bare trusts are often used to hold assets for children or grandchildren until they are old enough to receive them.

• Interest in possession trust. The beneficiary has a right to the income from the trust assets — or the right to use the assets — for a defined period or for life. They do not own the capital outright. On the death of the life tenant, the capital passes to the remainder beneficiaries. The Protective Property Trust Will and the Flexible Life Interest Trust Will are both forms of interest in possession trust. The life tenant is treated as owning the trust assets for IHT purposes on their death.

• Discretionary trust. No beneficiary has a fixed entitlement. The trustees have discretion to decide who benefits, when, and how much — guided by the settlor's letter of wishes but not bound by it. The most flexible trust structure. Used widely in estate planning to protect assets, manage IHT, and provide for beneficiaries whose circumstances may change. Subject to periodic charges every ten years and exit charges when assets leave the trust.

• Accumulation trust. Income is accumulated within the trust rather than distributed to beneficiaries. Used where the settlor wants income to build up within the trust over time rather than being paid out. Subject to the same tax treatment as a discretionary trust.

• Charitable trust. A trust established for charitable purposes — rather than for the benefit of specific individuals. Subject to charity law and the oversight of the Charity Commission. Benefits from significant tax reliefs. Covered in more detail in the Charity help sheet.

• Purpose trust. A trust established for a specific purpose rather than for identifiable beneficiaries. Rare in English law — English law generally requires identifiable beneficiaries — but more common in offshore jurisdictions where purpose trusts are used for specific commercial or holding arrangements.

Offshore trusts

Fact

An offshore trust is a trust governed by the law of a jurisdiction outside the United Kingdom — Jersey, Guernsey, the Isle of Man, the Cayman Islands, and the British Virgin Islands are among the most commonly used. The governing law is chosen by the settlor and specified in the trust deed. Offshore trusts are used for a variety of legitimate purposes — holding international assets, planning for beneficiaries in multiple jurisdictions, accessing more flexible trust structures than English law provides, and in some cases tax planning.

For UK-domiciled settlors, an offshore trust does not remove the connection to UK tax. HMRC taxes UK-domiciled settlors on the income and gains of offshore trusts in many circumstances — and the anti-avoidance provisions in UK tax law are extensive. An offshore trust is not a mechanism for avoiding UK tax for UK residents and domiciliary. It is a structure with specific uses and specific compliance requirements, and one that requires specialist advice to implement and maintain correctly.

Observation

The existence of offshore trust jurisdictions — each with their own trust law, their own courts, and their own approach to recognition and enforcement — is itself an illustration of the point made at the start of this help sheet. The trust, as an arrangement, is not the creation of any one legal system. Different jurisdictions have developed their own frameworks for recognising and giving effect to it. The choice of jurisdiction is the choice of which framework to operate within — not a choice about whether the arrangement exists.

On death and incapacity — the trust's built-in succession

Fact

One of the most powerful characteristics of a trust is that it has succession built into its structure. A trust does not cease to exist on the death of a trustee, a beneficiary, or even the settlor. The arrangement continues. The assets remain held on the terms of the trust deed. New trustees can be appointed to replace those who have died, resigned, or lost capacity. The trust outlives the individuals involved in it.

The Trustee Act 1925 and the Trustee Act 2000 provide mechanisms for the appointment and removal of trustees — ensuring the trust can continue to be administered even when the original trustees are no longer able to act. The trust deed itself should include provisions for trustee succession — who has the power to appoint new trustees, in what circumstances, and whether a minimum number of trustees must always be in place.

On the death of a beneficiary with a fixed interest — an interest in possession — that interest forms part of their estate and is dealt with accordingly. On the death of a discretionary beneficiary, their interest — which was never fixed — simply ceases. There is nothing for the executor to deal with in relation to a discretionary trust interest. It does not form part of the estate. It cannot be passed on through a Will.

Trustee incapacity. A trustee who loses mental capacity cannot act — cannot sign documents, attend meetings, or make decisions. The trust deed should address this — whether the incapacitated trustee's appointment terminates automatically, how a replacement is appointed, and what authority the remaining trustees have in the interim. A co-trustee can continue to act — the trust does not fail because one trustee loses capacity. But a sole trustee who loses capacity creates a practical difficulty that needs to be resolved through the Court of Protection if the trust deed does not address it.

Trust and estate planning

Philosophy

A trust is, at its heart, an act of intention — a man or woman saying: I want these assets to be held, protected, and applied in this way, for these people, for these purposes. It is the most direct expression of estate planning intention available. More direct than a Will, which only takes effect on death. More flexible than a company, which has its own legal requirements and its own purposes. A trust is precisely what the settlor makes it — governed by their intention, shaped by the three certainties, and lasting as long as the arrangement requires.

Understanding what a trust is — and what it is not — is the foundation of understanding the estate planning documents in this Knowledge Base. A PPT Will creates a trust on death. A FLIT Will creates a trust on death. A Discretionary Trust Will creates a trust on death. An APT+ is a trust. A SEAPT is a trust. Each is a different expression of the same fundamental arrangement — the trustees holding something for the benefit of another, in accordance with the intention of the person who created it.

"A trust is not a tax device. It is not a loophole. It is not a mechanism invented by lawyers to complicate simple arrangements. It is the oldest and most natural expression of the idea that one person can hold something on behalf of another — and be bound to do so faithfully, with honesty, and in accordance with the wishes of the person who entrusted them with it. Everything else — the tax treatment, the legal framework, the court decisions — flows from that. The arrangement came first."