Bare Trust vs Discretionary Trust for Children: Which to Use? 2026/27

The fundamental difference: fixed entitlement vs discretion

The choice between a bare trust and a discretionary trust for passing money to children usually comes down to one central question: do you want the child to have an unavoidable, fixed right to the money at a set age, or do you want trustees to retain ongoing control over who gets what and when?

• A bare trust (sometimes called a simple trust) names a specific beneficiary who has an absolute right to both the capital and any income generated, which they can demand outright once they reach 18 (in England, Wales and Northern Ireland) or 16 (in Scotland). The trustees are essentially just holding and managing the assets until that point — they cannot withhold the assets or redirect them elsewhere once the beneficiary reaches the qualifying age.
• A discretionary trust names a class of potential beneficiaries — for example "my grandchildren" — without any individual having a guaranteed share. The trustees decide, using their own judgement, who receives income or capital, how much, and when, and this discretion can continue well beyond age 18, giving far more long-term control and flexibility.

Why the age-18 access point matters so much

The single biggest practical concern families raise about bare trusts is what happens at the access age. Because the beneficiary's entitlement is fixed and absolute, there is no mechanism to delay access, reduce the amount, or attach conditions once they reach 18 (or 16 in Scotland) — even if the trustees believe the beneficiary is not ready to manage a substantial sum responsibly. A discretionary trust avoids this problem entirely, since trustees can continue holding, managing, and gradually releasing funds well into adulthood if that is judged appropriate.

Tax treatment compared

Income tax: Income arising within a bare trust is normally treated, for tax purposes, as belonging directly to the beneficiary (subject to special rules where a parent has set up the trust for their own minor child using their own money, which can attribute income back to the parent instead). This often means the beneficiary can use their own personal allowance and lower tax bands. Income within a discretionary trust, by contrast, is generally taxed at the trust rate, currently 45% for most types of income, before any distribution is made — though a beneficiary who then receives a distribution can potentially reclaim some of that tax depending on their own personal tax position.

Inheritance Tax on setting up the trust: A gift into a bare trust for a named beneficiary is usually treated like an outright gift to that individual — a potentially exempt transfer, becoming fully exempt from Inheritance Tax if the settlor survives seven years. A gift into most discretionary trusts is instead an immediately chargeable lifetime transfer, tested straight away against the settlor's available nil rate band, with tax potentially due immediately if the gift (combined with other chargeable transfers in the previous seven years) exceeds that band.

Ongoing Inheritance Tax charges: Discretionary trusts are also subject to their own periodic ten-year anniversary charges and exit charges when capital leaves the trust, which do not apply to bare trusts, since bare trust assets are treated as belonging to the beneficiary throughout, not to a separate trust structure for Inheritance Tax purposes.

Which to choose

A bare trust tends to suit families who are comfortable with the beneficiary gaining full, unrestricted access at 18, who want the simplicity of income being taxed at the (often lower) personal rates of the child, and who are giving a relatively modest sum where the risk of premature, unwise spending at 18 is less of a concern.

A discretionary trust tends to suit families who want ongoing control over timing and amount, are dealing with larger sums, have concerns about a beneficiary's readiness to manage money at a young age, or want flexibility to respond to changing family circumstances (additional grandchildren, changes in need) over time — accepting the higher administrative burden and the less favourable default tax rate on trust income as the trade-off for that flexibility.