Trusts separate out the legal title to and responsibility for an asset (which is held by the trustees) from the beneficial interest (which is held for the beneficiaries.) Trustees therefore have all the responsibility (and aggro) with none of the benefit. Trusts can be simple – think of a grandparent holding money in a bank account for a grandchild to complex – think of a fully discretionary trust with multi million pound real estate and everything in between.
Trusts can be very useful vehicles for asset protection eg for vulnerable beneficiaries or minors or for people who want to undertake inheritance tax planning and give assets away from their estate but retain control over the ultimate destination of those assets.
If you want to put your house in a trust, you first need to create the trust document setting out the terms. You need to choose trustees (people you absolutely trust!), who you want to benefit (these can be named individuals, classes of people like siblings or children and can include charities) and whether they are to have “vested” interest eg the right or future right to income/capital or whether they are a discretionary beneficiary ie only have the right to be considered and only benefitting from the trust if the trustees decide to give them something. You then need to transfer the legal title to the trustees (and registrations at the Land Registry are currently taking up to 12 months.) And the trust then has to be registered with the Trust Registration Service at HMRC.
If you want to put your house into trust, it is likely that you will want to also be a beneficiary ie able to carry on living in the house. You can do this, but there is no guarantee it will be effective to avoid care fees. A local authority, being asked to fund a person’s care, will look at that person’s financial situation including any gifts made prior to the application for financial support to ascertain if there is “intentional deprivation of assets” to avoid paying for care. If there is a genuine reason to put your house into trust eg because you are a vulnerable beneficiary and likely in the future to be unable to manage your property/finances or if the gift into trust is made at a time when there was no likelihood of your needing care, then the local authority may not be able to make the case. The approach taken can vary depending on the local authority.
Giving a house in which you continue living can cause issues from an inheritance tax perspective. The gift is ineffective for inheritance tax planning as it is a gift with reservation of benefit (GROB) and will still be treated as being owned by you for inheritance tax purposes. However, you will have given the house away and so will need to work with the trustees you have chosen for any future dealings with the house. This may not be an issue unless you fall out with them! Putting your house in trust in your lifetime also prevents your estate being able to claim residence nil rate band relief, a valuable relief that can save anything up to £140,000 of tax. A person can also only put up to £325,000 of value in the house into trust without incurring a 20% inheritance tax charge at the point of transfer.
A married/civilly partnered couple can give their half of the house into trust in their will without it being intentional deprivation. You are protecting less of the house but this is a more certain route and you can still claim the residence nil rate band.
This is generic advice only and not to be relied on –your actual tax position will depend on your individual circumstances. If you would like to discuss anything to do with trusts then please get in touch with a member of the Tax & Estate team.
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