Living Trust For A House

Does placing a property into a Trust help with inheritance tax?

I do remember articles in the Sunday papers about this, and unfortunately, the commentators in the papers got it wrong. Placing your home into a Trust does not help with inheritance tax. This is due to the Gift with Reservation of Benefit rules.

HMRC will judge that you have retained a benefit in the asset because you’ve been living in the property. They will deem that it has not been given away for inheritance tax purposes.

Can beneficiaries force the sale of the house if it’s in a Trust?

Not if the Trust wording makes it clear that you will always have a right to live in the property.
Normally, the settlor – the person who sets up the Trust – will be a Trustee.

Sometimes later on in life, that settlor may not want to be a Trustee or may be losing capacity. In this case, their children or other independent Trustees will operate and administer the Trust. But still, the wording usually makes sure your rights cannot be overridden in that way.

Can I remove my house from the Trust later if I change my mind?

You can. As a settlor, you would normally have powers to remove or disband the Trust with the agreement of the other Trustees. If the other Trustees don’t agree, there’s usually wording that allows you to replace Trustees if they do not want to follow your wishes.

So, you should feel confident that you can remove your house from the Trust and put it back into your sole name.

Does putting a house in a Trust protect it from care home fees?

Unfortunately, this is wishful thinking. It may or may not do. The local authority, as mentioned before, can argue that you’ve settled the Trust in order to deprive them of your assets. They would then go to the courts to overturn the Trust.

You could find that although you have invested a lot of money and effort, the courts rule that you settled the Trust to protect it from care home fees.

So, I have to say no to that question. However, you may be able to demonstrate that the Trust was set up for other reasons – such as the ones we went through at the beginning.

There are plenty of examples where the courts have agreed that the Trust was set up for good reasons and that the local authority should not conclude that you set up the Trust to deprive them. It can work, but we can’t recommend it for those reasons.

Who actually owns the house once it’s in the Trust?

The legal owners are the Trustees. The settlor will usually have the legal right to reside in the property. The settlor will usually be able to disband the Trust should they want to. They could put it back into their sole name and become the owner once again.

What documents do I need to set up a Living Trust for my house?

There are three documents we usually see in a file relating to this: firstly, the Trust document, which sets out all the powers that the Trustees and settlor have, and names the settlor and the Trustees.

It doesn’t say what assets are in the Trust, so there’s another document called a declaration of Trust, which declares the assets included. This document states the address of the property and confirms that it is an asset of the Trust. Nowadays, we may say that up to £325,000 worth of the property is an asset of the Trust.

A third document, which is not legally binding but important, is a letter of wishes.
This is where the settlor confirms that the Trustees should look after his or her best interests first, but if the settlor goes into long-term care, they should then look after their partner or children or whoever is next.

If there aren’t any children around, you might want it to go to nephews, nieces or charities.
It’s an important document and ensures that the Trustees don’t have a dilemma about knowing what to do. It gives them clear guidance.

Can the Trustees be changed later if relationships or circumstances change?

All the Trusts I’ve seen give the settler the power to change the Trustees.
How do I put my house in a Living Trust? What’s the process?
Usually, a legal professional will draw up the documents and ensure that all Trustees sign with a witness present.

You should draw up minutes to record the decisions made by the settlor and Trustees at the outset, and also whenever decisions are made about the property or the Trust.

The guidance is to have a meeting once a year and keep minutes annually, but that’s often overlooked. It’s important that things are put down in writing, minuted and signed, and that the Trust documents are all signed and witnessed.

Do you have any final thoughts on this topic?

I’ve deliberately narrowed this podcast down to deal with single people who own their home outright – or possibly people in a partnership who don’t want to do the same thing and have a Trust each.

We deal with properties held in joint names in the next podcast, which is called Putting Half My House into a Living Trust.

Key Takeaways:

• A Trust is used to protect assets from claims under the 1975 Inheritance Act (e.g., in cases of divorce) or to protect financially or otherwise vulnerable beneficiaries.
• Placing a house in a Living Trust is generally not recommended to avoid care home fees; local authorities may challenge it under “Deprivation of Assets’ rules.
• It does not help with Inheritance Tax due to ‘Gift with Reservation of Benefit’ rules. For single people, it may not avoid probate if the property value exceeds £325,000 due to immediate tax charges.
• The cost is roughly £3,000 – £4,000 plus VAT. Key documents are the Trust Document, a Declaration of Trust (naming the property as an asset), and a Letter of Wishes (giving guidance to Trustees).
• The settlor (person setting up the Trust) typically retains the right to reside in the property and has powers to remove the house from the Trust or change the Trustees.