When considering how to protect your home and assets, the idea of putting your house in trust may arise. It’s a legal move many homeowners make for various reasons, but is it right for you?
In this guide, we’ll cover the essential details about putting your house in trust, including the advantages, potential downsides, and whether it’s the right option for you.
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What does it mean to put your house in trust?
Putting your house in trust means transferring the legal ownership of your property to a trustee, who will manage the asset on behalf of you and your beneficiaries. This allows you to retain control over the property, depending on the type of trust you set up, but the property itself is no longer owned by you personally.
In most cases, homeowners use a living trust or revocable trust, which enables them to maintain control of the property during their lifetime and ensure it is passed to their chosen beneficiaries after they pass away, without the need for probate.
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Why should you put your house in trust?
There are several reasons why homeowners consider putting their property in trust. For many, it’s a proactive way to safeguard assets and make sure their wishes are followed. Here are some key reasons why you might think about putting your house in trust:
- Avoiding probate: One of the main benefits is that a trust can help avoid the probate process. Probate can be lengthy and expensive, and when your home is placed in a trust, it can pass directly to your beneficiaries without having to go through probate. This can save time and reduce costs for your loved ones after your death.
- Reducing inheritance tax: If your estate exceeds the inheritance tax threshold, putting your house in a trust can help reduce the tax burden on your beneficiaries. The value of your property is no longer included in your estate for tax purposes, which can lower the amount of inheritance tax due.
- Protecting your home from care fees: If you need to go into long-term care, placing your property in a trust can help ensure it is protected from being used to cover care home fees. If your property is in a trust, it may not be counted as part of your assets when the local authority determines how much you need to pay for care.
- Ensuring your wishes are followed: By placing your house in a trust, you have greater control over how and when your property is distributed. If you want to ensure that your home stays in the family or that specific conditions are met before it’s passed on, a trust allows you to lay out those wishes clearly.
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How to put your house in trust
If you’ve decided that putting your house in trust is the right decision, the process is straightforward, but it requires careful planning. Here’s how to go about it:
- Choose a trustee: The first step is to choose a trustee who will be responsible for managing your property. This can be a family member, a friend, or a professional trustee, such as a solicitor or a trust company. Your trustee will need to act in your best interest and follow the instructions laid out in the trust deed.
- Select the type of trust: There are different types of trusts, including revocable trusts and irrevocable trusts. A revocable trust allows you to retain control of the property and make changes to the trust during your lifetime. An irrevocable trust, on the other hand, means you can’t change the terms or reclaim ownership of the property once it’s placed in the trust, but it provides greater protection against inheritance tax and care fees.
- Draft the trust deed: The trust deed is a legal document that outlines how the trust should be managed and who the beneficiaries will be. It will detail your instructions for the distribution of the property after your death. It’s important to work with a solicitor to ensure this document is legally sound and properly executed.
- Transfer ownership: After the trust is set up, you will need to transfer ownership of your house to the trust. This involves changing the title deeds to reflect the trust’s ownership. Again, you should consult with a legal professional to ensure this is done correctly.
The pros and cons of putting your house in trust
As with any decision, there are both advantages and disadvantages to placing your house in trust.
The pros:
- Avoid probate: One of the key benefits is the ability to pass the property to your beneficiaries without going through probate, saving time and costs.
- Tax benefits: If you’re worried about inheritance tax, putting your house in trust can help reduce the tax burden for your heirs.
- Protection from care fees: By putting your property in trust, you can protect it from being used to pay for care fees if you need long-term care in the future.
- Control over distribution: You can set specific conditions for how and when your property is distributed, ensuring that your wishes are followed.
The cons:
- Loss of control (for irrevocable trusts): If you choose an irrevocable trust, you’ll lose control over the property. Once it’s transferred to the trust, you cannot change your mind or reclaim ownership.
- Legal complexity and costs: Setting up a trust can be a complex process and may incur legal fees, as you’ll need a solicitor to draft the trust deed and transfer the property into the trust.
- Ongoing management: A trustee is responsible for managing the property and adhering to the terms of the trust. If you choose a professional trustee, there may be ongoing fees associated with their management.
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Should you put your house in trust?
The answer depends on your personal circumstances. If you’re looking for ways to protect your home from inheritance tax, care fees, or the probate process, placing your house in trust could be an effective strategy. However, it’s important to weigh the pros and cons carefully before making any decisions.
If you’re uncertain, consulting with a solicitor or financial advisor is a smart move to help you understand your options and ensure the trust is set up correctly. If you have any questions about putting your house in trust or need assistance with property planning, don’t hesitate to get in touch with your local Parkers branch today.
