Michelle is an award-winning chartered financial planner who holds the designation 'Fellow of the PFS' demonstrating her commitment to maintaining the highest standards of knowledge, ethical conduct, and professional practice. Michelle is also an accredited member of the Society of Later Life advisers. Michelle offers a fully personalised service tailored to each clients individual needs and goals, using an approach that was recognised and honoured by the Women in Financial Advice awards in 2021. Clients working with Michelle can expect a high level of professionalism, integrity and a lasting relationship built on trust and open communication
Putting your house in trust means transferring the ownership and control of the house to a legal entity, called a trust. The trust will hold the property for the benefit of someone else, who is known as the beneficiary.
The trust document will set out what the rules are in relation to how the property is managed, who gets to benefit and who’s in control.
There are a number of benefits:
Avoiding probate. Normally, once you pass away and you have a will, your estate will go through probate. That can be a lengthy and costly process. If you’ve transferred your property into a trust, you’ve already defined who the beneficiaries are, so it doesn’t have to go through probate. It means you can avoid those time delays and costs.
Privacy. A will is a public record, so anybody can see who you’ve left your property to, whereas the trust is a private arrangement. So if you do want a degree of privacy then a trust could be used.
Protection. A trust protects the home from claims, creditors or legal action, because you’ve created legal separation between you and the property. But, as a word of warning, it is not always guaranteed to work, and it can be challenged.
Control and flexibility. You can give your property away to the trust and then become the trustee, possibly giving you more control over how your property is distributed. For example, you can specify an age restriction before a beneficiary can gain control over the property. Maybe you want them to achieve certain things before they gain control. That can be specified within a trust.
Inheritance tax planning. Trusts can be used to reduce tax, but this is a complicated area of law and finance. So you must always consider the legal implications of what you’re doing. Seek advice from a solicitor.
Psychological and financial benefits. There are advantages to removing the financial and psychological burden of home ownership – especially if you can continue to live in the property.
Loss of control. While you will have more control in terms of flexibility, you’re actually going to lose control of the property. You give up direct ownership. Although you can be a trustee, you will usually appoint another trustee to work with you. That’s the whole purpose of the trust, to pass the property on to your beneficiaries through that structure.
Costs. There are trust admin costs, such as legal fees, to get it set up. There are also maintenance costs in some cases.
Inflexibility. It can be really difficult to change a trust once established – and in some cases it’s impossible. It’s really important that you’re fully aware of any inflexibilities before you create the trust. It has been known in the past for a trust to be created and the legal wording means you can’t unwind it.
Tax liability. Trusts offer a lot of tax benefits but there are tax implications too. There are complex rules regarding tax: they have their own income, capital gains tax and inheritance tax positions. Different types of trusts have other tax considerations too.
Complexity. You’re probably going to need professional assistance. Creating and managing the trust can be complicated. Don’t set up a trust without legal advice, and you should get financial advice at the same time. All these things add to the cost.
Financial products. There’s also potential impact on mortgages and home insurance. You may not even be able to do it if there’s a mortgage on the property. And, if you wanted to take out a mortgage in the future, having the property in trust will probably make that impossible.
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Yes – you’re transferring the ownership and the control of the asset to a trust. Although you can appoint yourself as a trustee and make decisions, you will have to make those decisions in favour of the beneficiary, not yourself.
This really depends on the purpose for putting your home in trust. A trust is just a way to achieve a goal. The biggest reason that people talk about putting their home into trust is to prevent the value being used for care fees.
But in my opinion, putting your home in trust may not help. A local authority can decide that it is ‘deliberate asset deprivation’. So if you are looking for ways to reduce or cap the cost of your care fees, or making sure you’re leaving an inheritance for your family, there are plenty of other financial planning options to consider first.
It’s definitely not a guarantee. It’s possible, but it’s not infallible. The local authority can challenge previous financial decisions if they believe they were taken to avoid paying for care home fees.
It’s known as deliberate asset deprivation. If you’re found to have deliberately deprived yourself of an asset to pay for your care, you’ll be treated as if you still have that gifted asset. Potentially the recipient of the gift can be required to pay the fees.
There was an interview given by somebody called Bridget Shilton in 2017 who made the position really clear. She did the interview for Radio 4 Money Box and she said that authorities will ask questions about the motivation for this course of action.
On top of that, it might be that you do want to use the value of your home to pay for care in the future. Nobody knows what’s around the corner. You might decide that actually you would really like to stay in your home and get some support to keep you as independent as possible.
You may need the value of your home to pay for that care. That’s a personal preference, and if you’ve already given your property away to trust, you can’t take out a later life mortgage to pay for that domiciliary care.
Yes. You can do what you like with the property – you can give it away, transfer it into trust or anything you like. But how that will be viewed for inheritance tax purposes or for care fees later on will very much depend on how you’ve done it, why you’ve done it, if you still get a benefit from the property and various other things. All that will crop up, so definitely take legal advice before you do any of those things.
There are so many. That’s why it’s really important to get advice, because your solicitor can talk you through which ones will be right to achieve your objective.
I can’t stress it enough: get professional legal advice and financial advice at the same time. Your solicitor is excellent at trust wording and the laws and everything to get your message across in the trust. A finance advisor will help you see the financial consequences of each course of action both for you and your beneficiaries in the future.
So make sure you’ve explored all of your options and the advantages and disadvantages.
I’m aware of a lot of adverts around at the moment which talk about the benefits of putting your home into trust to avoid care fees – I’ve seen them, I’ve been approached by some clients to talk about them.
My advice is always that it’s not as straightforward as it looks. There will definitely be implications and disadvantages. As long as you’re going into it with your eyes open, you’ll know what you’re doing.
It will be owned by the trust. The trustees have the responsibility for maintaining it and dealing with the costs. It is held for the benefit of the beneficiaries. So every decision that’s taken about that property must now favour the interests of the beneficiaries.
It can, but most trusts set up with properties in mind allow trustees to sell the home and use the proceeds to purchase another property for you to live in. Again, that’s why it’s so important that the trust is set up correctly. The wording must be absolutely accurate, so work with a legal professional to ensure you have considered all benefits and drawbacks.
Yes, you can. Again, it will have implications for your inheritance tax position. If you’re doing trust planning for inheritance tax purposes, it’s not the best solution.
If you’re still living there, the property is going to be considered part of your estate, unless you pay market rent. Some other things can help you get around it, and that’s why you need financial advice and legal advice.
You can use a solicitor to arrange it. They can set up all the trust wording for you and make sure that everything’s set up correctly. The cost varies depending on the solicitor you’re using, how many trusts are involved, how complicated the trust gets and whether your trustees are professional or not. There’s so many different factors to consider – but a really good solicitor will steer you along the right path.
When we tell you about a fee, you will always receive a clear explanation of: The total fee, the advice service it relates to, how it's been calculated, when you need to pay it and your payment options.
It depends completely on the type of trust that you set up. Each different kind of trust has its own tax position from an income tax, capital gains tax and inheritance tax point of view. The most common type of trust for property could give you an immediate inheritance tax charge on that trust transfer.
There is no legal reason why you couldn’t do this in practice, although you’re going to need the agreement of your existing mortgage lender. As of today, I’m only aware of one mortgage lender in the entire UK that would allow a trust to take out a mortgage on a property. So legally there’s no reason why not, but practically I don’t think you’d be able to.
You need to get approval from your lender to transfer the property into trust before you do anything. It is unlikely that they would approve this. So realistically, you’re probably going to need to repay your mortgage before you do it.
You should absolutely book an appointment with a solicitor and a financial adviser, to go through the options, the disadvantages and the advantages of the course of action that you’re thinking of taking.
There’s a lot of information on the internet, but this is not personalised to your circumstances. You can also get advice about alternative courses of action. You might be thinking that the only way to achieve your aim is to put your property into trust, but with advice from professionals you might find that there are actually other ways of achieving your goal.
INHERITANCE TAX PLANNING, TRUSTS & TAX PLANNING ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
ESTATE PLANNING IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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