home protection trust

Home protection trust

One method of estate planning is setting up a home protection trust. However, this not without problem, and you should consider these risks before paying for such a trust.

What is a home protection trust?

This is a type of trust that protects your rights to reside in your family home. Having a trust makes sure that the home passes on to your beneficiaries, which are often your children.

This potentially avoids the complications of probate and avoiding the council assessing the value of the home for care home fees. Additionally, when the settlor dies, the property in the trust will not be treated as part of their estate.

As a result, when the inheritance tax is assessed, the property in the trust will not be included. These trusts can also be called property protection trusts or asset protection trusts.

How do home protection trusts work?

Home protection trusts are wills trusts, not lifetime trusts. While you are alive, you and your husband or wife should transfer the ownership of your home into tenants in common rather than joint tenants.

A trust is set up on your death, so your home goes into the names of your trustees, who hold the property on behalf of the beneficiaries, often your children.

After your death, a requirement will be written into the trust arrangement that the surviving spouse can continue to live in the property for the rest of their life.

After they pass away, assets in the trust will be distributed between your beneficiaries. No grant of probate will be needed.

Who should consider a home protection trust?

Home protection trusts are suited to couples and partners who have a lot of their assets in the form of property or a family home.

This type of trust especially useful if you are concerned about paying for long term care fees, and you want to ensure that your children get at least 50% of the value of your home.

One benefit of this arrangement is that your partner or spouse can continue to live in and get benefit from the property, even after you pass away.

Are property protection trusts legal?

Yes, however, you cannot have set up the trust to deliberately avoid having to pay for care. This is called ‘deprivation of assets’.

If the council looks at the context of setting up the trust, and thinks that it was set up to avoid paying for care, they have wide discretion.

This can include assessing the property for care costs anyway. Therefore, if your spouse already had health issues when the trust was set up, it is likely this will be deliberate deprivation. Hence, it is worth seeking legal advice, otherwise, the efforts of setting up a trust could amount to nothing.

Are family protection trusts a good idea?

You should seek legal advice for your specific case. You should appoint someone with knowledge of the legal area to ensure the purpose of the trust is achieved.

Situations have been in the news recently where the solicitor or adviser has not explained the limitations and pitfalls of these trusts to their client, meaning the trust is useless but costly.

home trust

What are the advantages of home protection trusts?

You will need to factor in the advantages of these trusts before taking steps to handle your affairs. The benefits can include:

  • The ability to have control over what happens to your estate.
  • Local authorities will not assess the property when they assess care home fees. Hence, the state may pay your care funding.
  • The interest of the survivor is protected and they can continue to live in the property. Trustees cannot remove them.
  • Inheritance tax purposes.
  • Family members can avoid probate.
  • Fewer risks than transferring the property directly to a relative as a gift, who could go bankrupt or get divorced.

What are the disadvantages of home protection trusts?

However, these trusts are not always the perfect solution in the administration of your estate. There can be a number of problems, including:

  • Putting property into trust to avoid care home fees is not allowed. There are a number of steps the local authority can take if they think there has been a deprivation of assets. Trust wills can be disregarded and local authorities can still assess the property for care fees if they think the asset protection trust was for the purposes of avoiding care home costs. There is a chance you could end up in court if the health of your partner was deteriorating when you set up the trust.
  • An asset protection trust can be expensive to set up.
  • There can be complications, such as capital gains tax and where the property value is above the HMRC nil-rate band.
  • There still may be iht consequences for the family member who inherits the property
  • Unlike a life interest trust, the person setting up the asset protection trust does not get income while they are alive, as the trust only comes to effect in trust will, so after the settlor is deceased..

What does it mean when you put your house in trust?

Normally, when you own your home, you have the legal and beneficial rights to the property.

When you put your house in trust, the legal and beneficial ownership is split, so the trustees have the legal ownership, and the beneficiaries have the right to enjoy the property.

When you put your house on trust, you technically will not own it anymore, though it will be in the trust agreement that you can continue living there. The trustees will have control of the property, though the settlor is generally a trustee too, so you can still determine what happens to your assets.

After your death, the asset will be distributed among beneficiaries as set out in the trust document.

How much does a property protection trust?

This will depend on the complexity of your estate and the tax implications of setting up a protection trust.

In general, setting up a trust will cost between £250 and £1000. It will be more expensive to set up a trust as a couple than as an individual person.

There is generally a fixed fee for legal services and experts to set up the trust, plus conveyancing fees when you move money in and out of the trust account.

How do I set up a home protection trust?

If you are interested in exploring this option further, you should instruct legal services with experience of similar cases.

Navigation of this area can be difficult, so you need to make sure you understand the risks involved in protecting assets in a trust, especially if it is determined you are trying to avoid care home fees.

What are the alternatives to property protection trust?

If after assessing the pros and cons of a property will trust, you decide they are not the right option for you to maintain family wealth, you may want to consider the alternative estate management options.

These include:

  • Lifetime trusts, which you can get income off while you are alive.
  • A discretionary trust will for vulnerable or mentally incapable individuals.
  • Transfer the property into your children’s names as a gift. However, this is likely to have inheritance tax consequences, and there are risks to the estate, such as if a child faces bankruptcy or divorce. Therefore, you could also look at an inheritance tax planning trust.
  • Family protection trust.

Confused or need help with which type of Trust will best protect your house and assets? The Co-Op can explain which option is likely to be best for you.  Contact them direct or book an appointment below.



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