Should You Consider Placing Your Home in a Trust?

Placing your home in a trust is often considered a good way to help protect one of your most valuable assets. However, the truth may be somewhat different. Putting your home in a trust can cause problems that could have been avoided.

What does placing your home in a trust mean?

Placing your home in a trust is where you (the settlor) transfer the ownership to someone else (the trustee) for the benefit of others (the beneficiaries). For example, you may put your home in a trust so it can be passed on to a relative in the future. There are many types of trust, including:

• Bare trusts
• Interest in possession trusts
• Discretionary trusts
• Life interest trusts
• Property protection trusts
• Flexible trusts

Each comes with complex, strict, and often confusing rules. Trusts can technically be revocable or irrevocable, depending on the terms of the trust deed. However, most trusts used for property planning are irrevocable.

• Revocable trust: A trust that can be modified or terminated at any time during the owner's lifetime.
• Irrevocable trust: A permanent arrangement

Why would you put your home in a trust?

There are varying reasons people put their home in a trust. For some people, it’s a way to avoid having to sell their home if they ever need long-term care. For others, it’s an optimal solution for passing a property to family members with tax efficiency in mind.

What are the benefits of putting your home in a trust?

Putting your home in a trust can be beneficial. For homeowners considering ways to avoid probate and protect their assets, a trust can be worthwhile. Further down the page, we’ll explore some of the drawbacks of putting a home in a trust, but below, you’ll discover some of the reasons you may consider placing your home in a trust.

• Tax saving: A trust can help you minimise IHT and see half of the beneficial interest of a rental property be gifted to a spouse so they can make use of any underutilised tax allowances and reduce the tax due on rental income.
• Avoidance of care home fees: With assets secure in a trust, they can be protected from care home fees. However, trusts can be bypassed if there is a reason to believe they were created for financial gain. This is where the local authorities apply what is known as “Deprivation of Assets Rules”.
• Wealth protection: Placing a valuable asset into a trust removes it from the owner's estate. This means that the home can be protected from creditors and other potential liabilities. However, if transfers were made purely to avoid existing debt, they can be challenged.
• Security for vulnerable family members: If a loved one is in poor health and/or unable to manage their finances, a trust means their property can be managed on their behalf.
• Probate avoidance: Assets placed in trust during lifetime are not subject to probate. This avoids an often expensive and time-consuming process.

How to put your house in a trust

If you decide to put your home in a trust, there are several steps to complete:

1. Decide on a trustee: This is the person who will manage your trust; it can be a family member or a friend, but in complex scenarios, a solicitor is often chosen.
2. Draw up the trust deed: As the homeowner, you’ll need to draw up a document outlining who the beneficiaries are. As this is a legal document, you may wish to have guidance from a solicitor.
3. Move the property into the trust: Sign a transfer deed and register the transfer with the Land Registry.
4. Pay the fees: Transferring property includes an array of fees. You’ll need to cover legal costs and any registration fees. In some cases, stamp duty will also apply.
5. Appoint the trustee: With trustees chosen, they must be officially appointed. Do this in writing, clearly defining their responsibilities.
6. Keep records and ensure correct administration: The trustees must ensure the trust keeps to its terms and that any transactions or decisions relating to it are recorded.

The disadvantages of putting a house in a trust

Putting a property in a trust can be beneficial, but it also has its drawbacks. We’ve outlined some of the common problems you may encounter.

• Costs: Placing a house into a trust isn’t free, and there is a wide range of costs to consider. You’ll have solicitor fees, accountancy fees and occasionally, stamp duty to think about.
• Lack of control: Once you put your house in a trust, you are no longer in control. The trustees manage the property on behalf of the beneficiaries.
• Potential IHT: Many trusts exist to reduce IHT. However, in the case of property, this can be more difficult. If you plan to remain living in the home after putting it in trust, the property remains part of your estate for IHT purposes as it will be treated as a Gift with Reservation of Benefit.
• Limited flexibility: Trusts are legally binding. This means that it can often be impossible or expensive to make any changes to them once set up.
• Tax returns: Trusts need to be registered with the Trust Registration Service at HMRC, and this means that, in some cases, tax returns need to be completed each year.

The law on trusts and tax can change quickly. If you are considering placing a home in trust, legal and tax advice should be sought before proceeding.

If you are the trustee of a property, and the wishes of the settlor are that the property be sold, speak to Bettermove. We facilitate a fast house sale that aligns with the trust’s goals. We offer two routes to sale, each guaranteeing that your property sells. We also sell your house for free, all legal fees are covered by us, reducing your outgoings considerably.