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What is a living trust

Discover what a living trust is, how it works, and why some people use it to manage assets during life and after death for greater control and flexibility.

A living trust – more commonly known as a ‘lifetime trust’ in the UK is– is a way to protect your assets during your lifetime and ensure they're passed on according to your wishes when you're gone.

How does a living trust work?

A living trust is a legal arrangement you create during your lifetime. You transfer ownership of your assets – things like your home, savings or investments – into the trust. These assets are then managed by trustees for the benefit of people you choose (your beneficiaries).

The key difference between a living trust and a will is timing. A will comes into effect when you die. A living trust starts working straight away, managing your assets throughout your lifetime and beyond.

Who controls the trust during your lifetime?

As the person who creates the trust (the settlor), you decide how your assets should be used. The trustees are the people legally responsible for managing the trust. They hold the assets and make decisions according to your wishes. Many people choose to be a trustee themselves during their lifetime, keeping direct control of their assets while having others ready to step in if needed.

What are the benefits of a living trust?

Living trusts can offer several advantages:

Avoiding probate. Assets in a trust don't usually go through probate, meaning your loved ones can access their inheritance more quickly and with less hassle.
Control over distribution. You can set clear rules about when and how beneficiaries receive their inheritance, such as waiting until grandchildren reach a certain age.
Privacy. Unlike wills, which become public record, trusts remain private.
Planning for incapacity. If you lose capacity due to illness, your trustees can manage the trust on your behalf.
Protecting vulnerable beneficiaries. Trusts allow you to provide for loved ones who might struggle to manage a large inheritance.

Are there any drawbacks to living trusts?

Living trusts have some downsides you should know about:

Cost and complexity. A living trust costs more than a simple will. You’ll also need legal advice to set it up.
No automatic tax savings. A trust won’t cut your tax bill by default. In some cases, it can even add extra tax steps.
Care home assessments. Local councils may still count trust assets when working out care costs, especially if you moved property to avoid paying for care.
Less flexibility. Big financial decisions are harder once assets sit in a trust.
Ongoing admin. Trusts need regular management. This can include tax returns and keeping records.

What assets can go into a living trust?

You can place many types of assets into a living trust:

Property. Your home or other properties.
Savings and investments. Bank accounts, stocks and shares.
Personal possessions. Valuable items like jewellery or collectables.
Life insurance policies. Though specific rules apply.

Most people protect major assets while keeping enough accessible for day-to-day expenses.

Finance, retirement and old man with paperwork, laptop and budget plan, checking investment and taxes. Mortgage, insurance document and online pension savings review, senior man with debt in home. — Image credit: Shutterstock/ Sutthiphong Chandaeng

How do you set up a living trust?

Setting up a living trust requires professional guidance. You'll work with a solicitor to create a trust deed that sets out how your assets should be managed. You'll choose your trustees carefully and transfer ownership of your chosen assets into the trust.

For detailed guidance on trust creation, you can read more about how to set up trusts in your will. While that guide focuses on trusts created through wills, it provides useful background on the principles involved.

What documents do you need for a living trust?

Setting up a living trust requires several key documents:

Trust deed. The main legal document that establishes the trust.
Asset transfer forms. Paperwork to transfer ownership of assets into the trust.
Identification checks. Proof of identity to prevent fraud.
Investment records. Details of savings, investments or financial assets being placed in the trust.

Does a living trust help with Inheritance Tax?

This is where things get complicated. Living trusts don't automatically reduce Inheritance Tax. When you transfer assets into most types of living trusts, this counts as a taxable transfer. If the value exceeds £325,000, you may face an immediate tax charge of 20%. The trust may then face additional charges every 10 years.

If you give away your home by putting it in a trust but continue to live there rent-free, HMRC still counts it as part of your estate when you die, so you haven't actually reduced your Inheritance Tax bill. There are also Capital Gains Tax and Income Tax consequences to be considered.

Living trusts can sometimes form part of wider tax planning, but they're not a simple tax-saving solution. For comprehensive guidance, visit our guide to Inheritance Tax. Never set up a trust primarily to save tax without seeking professional advice.

Who should consider a living trust?

A living trust can be useful in certain situations:

People with complex family circumstances. It helps make sure children from different relationships are treated fairly and receive what you intend.
Parents of young children. A trust allows someone you choose to manage assets responsibly until your children are old enough to manage money themselves.
Those planning for incapacity. If illness or injury means you can’t manage your affairs, a trust ensures your finances are handled according to your wishes.
People with vulnerable beneficiaries. It provides ongoing protection for family members with disabilities or those who need extra support.
Homeowners with significant estates. A trust can protect property and make sure it passes to the right people without delays or disputes.

For many people, though, a well-drafted will and a Lasting Power of Attorney offer strong protection at a lower cost. You can also include certain types of trusts within your will, giving you similar flexibility and control without setting up a standalone living trust.

Can you change or revoke a living trust?

This depends on the type you set up. Grantors can change or cancel ‘revocable trusts’ anytime during their lifetime. But ‘irrevocable trusts’ are more difficult to change, and grantors may need court approval to do so.

The type that's right for you depends on your specific goals, which is why professional advice is essential.

Making the right choice for your future

Living trusts can be valuable tools for protecting your assets, but they're not right for everyone. Before you consider one, think carefully about what you're trying to achieve. Always seek independent professional advice from a regulated solicitor.

If you're ready to explore whether a living trust might be right for you, Saga Legal Services can help you understand your options and create a plan that gives you confidence about the future.

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