Placing Your Property In Trust In A Will

We’re discussing Trusts that are created by a Will when someone dies – not placing a property into a Trust during your lifetime. Property Trusts are ‘interest in possession’ Trusts and are different discretionary Trusts.

What is the process for transferring property into a Trust?

It is to instruct a Will which creates a Property Trust on first death.

Who is the legal owner of a property left in Trust in a Will? Are there specific UK legal requirements for property left in Trust in a Will?

The surviving spouse is given a life interest in the deceased spouse’s share of the property. He or she has the right to reside in that property for the rest of their life. The legal owners are technically the Trustees, but they have no right to the capital at this stage, and are just holding the assets for the benefit of the surviving spouse.

Can a single person put property in Trust?

Yes, a single person can put property in Trust during their lifetime or in a Will. But in this podcast, we’re talking about Will Trusts and not Lifetime Trusts.

A single person placing a property in Trust in a Will can protect that property for future generations. However, it would not be effective in preventing the local authority from possessing the testator’s property during their lifetime. For the rest of this podcast we’re really talking about married couples, civil partners or unmarried couples.

Can I put more than one person on my Property Trust?

Yes, you can name as many beneficiaries as you like.

Can I put half my home into a Property Trust will?

Yes. This is what most people do when they instruct a Property Trust Will. In practice, if you and your spouse own a property together, you may need to sever the tenancy at the Land Registry so that you own one half of the property and your spouse owns the other half of the property.

Your half of the property is dealt with by your Will and you put half your home into a Property Trust that’s created when you die.

Can I put multiple properties into the same Trust?

Yes, you can consider putting multiple properties into a Trust, but typically that would not be the sort of Property Trust that we’re talking about in this podcast. You can talk to one of our consultants about that.

We would normally talk to you about putting all your assets – one half of your home and one half of any second, third or other properties – into a Flexible Family Trust in a Will. This is also known as a Flexible Life Interest Trust.

There are no tax implications if you put your home into a Trust, but there could be considerations around putting rental properties into a Trust.

What happens if I want to sell the property after it’s in the Trust?

We dealt with this in the previous episode. The Trust does not affect your right or ability to sell in the future, as long as you have the signatures of the Trustees.

Your conveyancing solicitors can draw up the relevant documents, and then these need to be signed by all the Trustees.

You can then use the proceeds from the sale of your deceased spouse’s share of the property to buy your next home – and protect that share of your next home from being used to pay for care fees or being lost on remarriage.

What happens to the Property Trust if I become incapacitated?

This is a question that tends to crop up later on in the process, but it is worth considering at the outset and having a plan.

Ideally, and typically, the surviving spouse is one of the Trustees and they have control over their own home. If they want to move home, the wording of the Trust will say that the other Trustees must agree to any reasonable request.

But if they’re coming to a stage where they may be losing capacity to make decisions, they could consider retiring as a Trustee. They could give the the remaining Trustees the power to sell the property if they go into long-term care.

If you trust your Trustees, you can give them freedom to deal with the property as they wish.
But you must do this before you lose capacity, and the ability to sign documents and understand what you’re signing.

How can I ensure that my beneficiaries understand the Trust terms?

The Will is the Trust document. You will normally have had that explained by the Will writer or the consultant. If you have any doubts, you go back to the person who’s instructed the Will for you.

How do Trusts impact my eligibility for government or pension benefits?

It’s too general a question to answer, although normally, there is no change because you’re living in the property you own. There’s no capital gains tax or income tax to consider.

How does a Trust handle property that appreciates or depreciates in value?

I’m assuming this question is around Inheritance Tax (IHT).

An IHT assessment will include the value of the whole property on second death. The life interest (the right to reside) – is deemed to be an asset that you keep until you die. HMRC considers that the surviving spouse owns the deceased spouse’s share for IHT purposes if they possess a life interest.

But there is no Inheritance Tax to pay on first death, so it doesn’t really impact the survivor. The children inherit in the normal way on second death and IHT is paid on the assets as one would expect.

Can my heirs easily access the house left in Trust in a Will after my death? Can property left in Trust be sold after death?

Yes. The heirs are known as ‘remaindermen’ by some solicitors and legal people. Essentially, they inherit the property outright on second death, according to the Wills of the two people who died.

If two parents are leaving the whole property to their children, they inherit the property outright on second death. It is theirs and they can sell it as they wish.

What steps should I take if I want to change the terms of my Trust?

You would write a new Will. The Will is the Trust document and if you want to change the terms of the Trust you need to instruct a new Will, sign and have it witnessed to make it valid.

How often should I review or update my Will and Property Trust?

We would recommend everybody reviews their Will every five to seven years. There’s no fixed rule, but it’s particularly important to think about any possible implications if there’s a change in government.

It’s unlikely the rules would change with regards to Trust law, but of course tax law can change and wills should be reviewed regularly.

What else do we need to know about placing property in Trust in a Will?

If your priorities are to protect assets for your bloodline, that is, your children and grandchildren and their descendants, you can also talk about Trust Wills. These take in all of the property, a second property and investment properties on second death.

They will be protected from being lost if your children later get divorced, become bankrupt or have problems with drugs. In those circumstances, if you instruct a Flexible Family Trust Will, you can give your heirs the opportunity to save Inheritance Tax on a generational basis.

You can learn more about this in the Tax Efficient Wills podcast, which is well worth listening to.