1 December 2023
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.
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.
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.
Here is a video about how Trusts can help.
Here are a list of pros and cons of putting your house in to a Trust.
1. Putting your home into a trust could protect your estate from inheritance tax and provide more certainty for those you leave behind. In the UK, trusts are exempt from inheritance tax, and any investments held within the trust can also be passed on free of tax.
2. Setting up a trust can help reduce the burden of legal and administrative costs associated with administering an estate after death, as it simplifies the process for trustees who manage assets on behalf of beneficiaries. Additionally, settling assets into a trust before death can be more cost-effective than waiting until later.
3. Trusts give you the power to determine how your assets are managed and dispersed. Unlike when leaving it up to family members or a court after death, trustees can utilise trusts in order to distribute funds whenever they choose.
1. Setting up a trust can be complicated and costly, as you’ll need to work with legal professionals to ensure that it is set up correctly. This can mean significant legal fees, which could outweigh any savings made by setting up a trust in the first place.
2. Trusts must be appropriately managed. If not, they can lose some of their tax advantages and give rise to unwelcome investigations from HMRC. If trustees fail to carry out their duties appropriately, they may face personal liability for any losses suffered due to mismanagement.
3. It is also important to note that trusts are subject to regulation. This means that trustees must comply with applicable laws and rules and any instructions set out by the grantor. Failure to do so could mean that the trustees are liable for their actions.
It is also worth noting that trusts often come with additional responsibilities.
Trustees have certain duties to perform when managing assets held within the trust, such as ensuring they are managed in accordance with the grantor’s instructions and any applicable laws. Therefore, it is important to make sure that the trustees are able and willing to do so before setting up a trust.
Estate 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.
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.
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.
You will need to factor in the advantages of these trusts before taking steps to handle your affairs. The benefits can include:
These trusts are not always the perfect solution in the administration of your estate.
There can be a number of disadvantages, including:
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.
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.
If you are interested in exploring setting up a home protection plan, 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.
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:
Hayley is responsible for writing content on the site as well as managing the social media channels. She has a degree in Art and Humanities. Hayley has been reviewing and writing on products for a number of years and uses her experience to recommend the best products.
