Setting Up a Trust for Your Children or Grandchildren

Most parents and grandparents want to leave something to the next generation — but handing a large inheritance directly to an 18-year-old isn't always the wisest move. A trust lets you provide for your children or grandchildren while keeping some sensible controls in place.

This guide explains the main types of trusts used for younger beneficiaries, how they work, and what they cost. We'll keep it in plain English — trusts don't have to be complicated.

Why Use a Trust for Children?

Under English law, children under 18 cannot legally hold property or manage large sums of money. If you leave an inheritance directly to a child in your Will, it gets held by trustees anyway until they turn 18 — at which point they receive the full amount, no questions asked.

A trust gives you more control:

• Set the age they inherit — you decide when they're mature enough (21, 25, or even 30)
• Protect from external risks — divorce settlements, creditors, or business failures can't touch trust assets
• Support education — trustees can release funds for school fees, university, or training
• Staged distribution — release a third at 21, a third at 25, and the rest at 30
• Protect vulnerable beneficiaries — if a child has a disability or additional needs, a trust ensures lifelong support without affecting benefits

Types of Trust for Children

There are also more specialised options:

18-25 trusts — created in a Will, these hold assets until the beneficiary reaches an age you specify between 18 and 25. They have favourable inheritance tax treatment compared to discretionary trusts.

Disabled person's trusts — designed for children with disabilities. These trusts ensure the child receives support without losing eligibility for means-tested benefits like Personal Independence Payment (PIP) or Universal Credit.

Life interest trusts — more commonly used for spouses, but can be structured to give a child income from assets (like rental income) while preserving the capital for the next generation.

How to Set Up a Trust for Your Children

The simplest and most common way to create a trust for children is through your Will. This is called a "testamentary trust" — it only comes into effect after your death.

Tax Implications of Children's Trusts

Trusts have their own tax rules, and it's important to understand them before setting one up.

Inheritance tax: Testamentary trusts (created in your Will) don't attract additional IHT on creation — they form part of your estate's IHT calculation. However, discretionary trusts may face periodic charges every 10 years (up to 6% of the trust value above the nil-rate band).

Income tax: Trust income (like rental income or interest) is taxed at the trust rate — currently 45% for dividends and 45% for other income. However, beneficiaries can reclaim tax if they're lower-rate taxpayers.

Capital gains tax: Trusts have an annual CGT exemption of half the individual allowance. Any gains above this are taxed at the trust rate (20% for most assets, 24% for residential property).

Family Trust Planning in Bridlington

Many of our clients in Bridlington and East Yorkshire want to leave assets to children or grandchildren but worry about handing over everything at 18. Whether you're concerned about maturity, marriage, or simply want to protect what you've worked for, a trust is often the answer.

Aaron at Safe Harbour Legal can help you set up trust provisions within your Will that protect your family for generations. We explain everything clearly and make sure you're comfortable with every decision.