Putting Your House In A Trust

What does putting your house in trust actually mean?

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.

What are the benefits of putting your house in trust?

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.

What are the potential drawbacks of putting your house in trust?

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.

Will I lose control of my home when putting a house into a trust?

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. 

What other options are available than putting your house in a trust?

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.

Can putting property into a trust avoid care home fees? 

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.