Types of Trusts Explained: Protecting Your Family, Your Way

Trusts are legal tools that help you manage, protect, and pass on your assets according to your wishes. Different types of Trusts serve different purposes - whether you're safeguarding your home, supporting vulnerable loved ones, or planning for inheritance tax.

Below is a clear and practical guide to the most common Trusts used in estate planning, with real-life examples to help you decide what's right for your situation.

1. Protective Property Trust 

Allows you to leave your share of your home to someone (usually your children), while giving a partner the legal right to live in it for life or until they remarry.

Example: David and Emma are married, each with children from previous relationships. David leaves his half of the house in a Protective Property Trust. Emma can live there for life, but David's share passes to his children when she dies or remarries.

Best for:

• Blended families 

• Protecting children's inheritance 

• Avoiding sideways disinheritance 

2. Life Interest Trust (Interest in Possession Trust) 

Provides a named beneficiary with income from the trust for life, while preserving the capital for other beneficiaries.

Example:

Claire leaves her investments in a Life Interest Trust for her second husband to receive the income for life. When he passes away, the capital goes to Claire's children.

Best for: • Providing for a spouse or partner • Long-term control over who ultimately inherits

3. Right to Reside Trust

Gives someone the right to live in a property for life or a set period, without giving them full control or ownership.

Example:

Andrew leaves his home in a Right to Reside Trust for his aunt. She can stay there for life, but she cannot sell or rent it. When she dies, the property passes to Andrew's children.

Best for:

• Letting someone live in your property

• Protecting the property's future destination 

4. Discretionary Trust

Trustees can decide how much, when, and to whom to distribute funds among a group of potential beneficiaries.

Example:

Rachel sets up a Discretionary Trust for her grandchildren. One may need university support, another may need a deposit for a house. The trustees decide based on each child's situation.

Best for: 

• Flexibility for changing needs

• Inheritance Tax planning

• Protecting beneficiaries from poor financial decisions 

5. Vulnerable Persons Trust (also called Disabled Person's Trust)

Provides for someone who is disabled or otherwise vulnerable, while protecting access to means-tested benefits.

Example: Tom leaves money in a Vulnerable Persons Trust for his autistic son. The son receives support from the Trust, his benefits are unaffected.

Best for:

• Supporting children or adults with disabilities

• Protecting long-term care needs

• Gaining tax advantages for qualifying Trusts 

6. Family Asset Protection Trust (FAPT)

A lifetime Trust that lets you place assets (like your home) into trust now, while retaining use and control. Often used to reduce probate delays, protect inheritance, and structure long-term estate planning.

Example:

Martin and Sarah set up a Family Asset Protection Trust and transfer their home into it while continuing to live there. When they both pass away, the home remains within the Trust. The trustees manage the assets on behalf of the beneficiaries, in line with the settlors' instructions. For example, a beneficiary may be allowed to live in the property or rent it out, depending on the terms of the Trust." This arrangement helps protect the estate from risks such as divorce, debt, or sideways inheritance. 

Best for:

• Keeping control of your home during your lifetime

• Avoiding probate delays and costs

• Protecting against remarriage, disputes, or sideways disinheritance

Note:

This type of Trust can offer many benefits when used appropriately. Professional guidance is recommended to avoid misuse and minimise the risk of legal or tax complications. 

7. Settlor-Interested Trust

Set up when the person creating the Trust (the settlor) or their spouse/civil partner may benefit from it in the future. 

Example:

Sophie sets up a Trust to hold savings but reserves the right to access them later. This provides flexibility but with limited tax benefits. 

Best for:

• Retaining access to funds

• Later-life planning

• Short-term flexibility 

8. Charitable Trust 

Created to benefit one or more charities and offers full tax relief. 

Example:

Edward leaves 10% of his estate in a Charitable Trust to support local youth projects. This reduces the inheritance tax rate on his remaining estate. 

Best for:

• Philanthropy

• Reducing IHT bills

• Creating a legacy of giving 

Final Thoughts

Every family and estate is different. Choosing the right Trust means understanding your goals - whether that's control, flexibility, tax planning, or protecting loved ones. Professional advice ensures the structure is legal, effective, and suited to your unique circumstances. 

At Only The Best Will Do Ltd, we make Trusts clear and personal. Whether you're planning for today or generations to come, we'll help you get it right - the first time. Call our team today.