Placing Your Property In Trust In A Will

A professionally drafted will from Will Power can save you a significant amount of money in the long run, and protect your loved ones from stress and heartache – at a time when they are already dealing with bereavement and funeral arrangements.

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Placing Your Property In Trust In A Will

Placing Your Property In Trust In A Will

Ian Winterbotham explains how and why you might put your house in a Trust.


In this podcast, we’re talking about Will Trusts and not lifetime Trusts. These Trusts are created by a Will when someone dies, and not by placing a property into a Trust during their lifetime.

Property Trusts have been used in Wills for many years, but have grown in popularity since local authorities have been given the right to possess assets to pay for care fees. Property Trust Wills have also grown in importance as divorce and remarriage have become more prevalent.

Property Trusts are ‘Interest In Possession’ Trusts and they are different from what are known as Discretionary Trusts. They’re really most appropriate for married couples, although they can sometimes be used by unmarried couples.

Unmarried couples would normally look at Discretionary trusts, but for married couples these types of Property Trusts can be more suitable.

What does ‘putting your house in a Trust’ actually mean?

That’s one of the big questions in our business – it’s such an abstract concept. Trust law has been developed over the centuries and is legally enforceable, but it often seems completely intangible and strange.

You can think of a Trust as a safety deposit box, for which the Trustees hold the keys. Each Trustee has a different key and all Trustees are required to unlock the safety deposit box at the same time to distribute the assets that are inside.

It can seem strange to imagine a house – or, in practice, half a house – being placed into a huge safety deposit box. But this is what can be seen to be achieved in English law.

What are the benefits of putting your house in a Trust?

There are two main benefits that apply to a lot of people, and are why people go to the trouble of establishing these Trusts.

The first benefit is to prevent assets from being lost to pay for care fees. So, if one person dies and the survivor goes into care, all the family assets including the family home could be used by the council to pay the care fees if there is no Trust in place.

The second main benefit is to protect assets if one person dies and then the survivor gets remarried. So if one of you passes away and the survivor were to remarry, this can cause problems for your children’s inheritance. The estate may become diluted with that of the future spouse and their children. It can even become the property of the children of the new spouse entirely.

These Trusts are a really effective way to make sure that your children or your chosen beneficiaries can inherit a decent amount of your assets at the end of the day.

What are the potential drawbacks of putting your house in a Trust?

You’ll need the signatures of the other Trustees if you want to move home or if you want to sell the property. You must choose your Trustees carefully – and I’ll come back to that in a minute.

The other drawback is something that’s emerged more frequently in recent years. If you want to draw down equity from your property, through what’s known as an equity release mortgage, you won’t be able to draw down any further funds after the first person has passed away.

That doesn’t stop you from taking out an equity release mortgage at any stage while you are both alive. You can draw down as much as they Will allow you to. You just need to be aware that you won’t be able to draw any further funds down after the first person dies.

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

In most cases, the Will gives the surviving spouse a life interest. The surviving spouse Will always have control of his or her home while he or she lives in it. This is because Trustees must act unanimously. Other Trustees cannot outvote the surviving spouse who is given the life interest.

As mentioned before, you should choose your Trustees carefully. Most clients have their spouse and their children as Trustees and expect the children to follow their requests. A property Trust Will give the surviving spouse the legal right to live in the property and dictate that the other Trustees should follow any reasonable request.

There is another reason why you rarely hear of any problems when children are named as Trustees – and this is because the surviving parent has the ability to change their own Will if the children are awkward. So generally, you do not lose control of your home when putting the house into a Trust in a Will.

What other options are available than putting your house in a Trust? Are there other options?

You could leave everything to the surviving spouse outright, but that leaves your share of the property and other assets vulnerable to pay for care fees or be lost on remarriage.

There is also growing evidence in our client base of what’s called Predatory Remarriage. This is where people may befriend a surviving spouse late on in life, saying that they have nowhere to live, or asking them to get married. In many cases they persuade them to redo their Will – sometimes on their deathbed.

It’s very difficult to undo a marriage. And although you can challenge a Will, it’s not often done. So you could leave everything directly to your surviving spouse, or you could consider putting your property into a Trust on your death.

You could even consider putting all your assets, including any cash or ISAs or investment assets, into a Trust – which is known as a flexible life interest Trust. We call them Flexible Family Trust Wills, and these are designed to protect your share in the property as well as your other assets. These could include investment property.

So there are other options. It’s important to talk these through before just jumping into one particular type of Will.

Can putting property into a Trust avoid care home fees?

This question comes from the concept of deliberate deprivation. People who put property into lifetime Trusts during their lifetime, not in a Will, can find that the local authority accuses them of doing so to deprive the council of money to pay for care fees.

A property Trust Will can guarantee that your share of the property is retained for your beneficiaries. Even if you die and your spouse needs long-term care, the local authority cannot access your assets. These are left in the Trust when you die.

What are the different types of Trusts available?

There are broadly three Trusts in English law. A bareTrust is the same as a gift, really, while the other two relevant to Wills are ‘Interest In Possession’ Trusts and discretionary Trusts.

The property Trust Wills and the Flexible Family Trust Wills I’ve talked about give a life interest to the surviving spouse or partner. In legal terms these are called Interest In Possession Trusts.

An Interest In Possession Trust gives the beneficiary the legal right to the income but not the capital. The capital is protected for the beneficiaries. The legal right to the income is equivalent to the legal right to live in the property – so you can have your cake and eat it.

You live in your property for the rest of your life, knowing that half the property does not have to be used to pay for care fees or lost if you get remarried.

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A professionally drafted will from Will Power can save you a significant amount of money in the long run, and protect your loved ones from stress and heartache – at a time when they are already dealing with bereavement and funeral arrangements.

How do I choose the right type of Trust for my property?

You really need to take advice and talk it through. Consider if you want your children to receive assets directly or in the form of a Trust.

The alternative to an Interest In Possession Trust is a Discretionary Trust, which can be helpful to protect assets if your children later get divorced or become bankrupt. Perhaps they’ve started a business at a bad time, or maybe they’re just vulnerable to making bad decisions. They may be susceptible to drugs and other things that come to tempt them along the way during their lives.

Does putting my house in a Trust affect my ability to sell it in the future?

It does not affect your right or ability to sell it in the future as long as you have the signatures of the Trustees when you sell it.

Typically, you would just go to an estate agent in the normal way to sell the property. Your conveyancing solicitors will draw up the relevant documents – and then these need to be signed by all the Trustees.

Can I still live in my house if it’s in a Trust?

Absolutely. You are given the right to reside in property Trust Wills and in Flexible Family Trust Wills. You can not only still live in the house but you also have the legal right to enjoy those assets for the rest of your life.

Sometimes people try to save inheritance tax by putting properties in a Trust, but it’s not effective if you’re going to live in it. It won’t save inheritance tax, but it is effective to protect the asset from being lost to pay for care fees or lost on remarriage.

How do I set up a Trust for my property?

The first step is very simple. You come to us and we take instructions for your Property Trust Will (or Flexible Family Trust Will if you want to include the property and other assets). The Trust will not be set up in your lifetime but it will be created when you die.

How much does it cost to set up a Trust for my property?

The cost of the Will usually won’t break the bank. The extra costs come when the first person dies. It will be necessary to get a grant of probate, which the children or executors can do atlittle cost.

There Will then be a cost to enact the Trust and record the Trustees’ names at the Land Registry. If you want a professional to apply for the grant of probate and enact the Trust for you, you do need to budget for a few thousand pounds.

What are the tax implications of putting my house in a Trust?

In a typical situation, where it’s the family home and the surviving spouse is going to continue living in the property, there will be no tax implications of putting your share of the house in a Trust. This is because there is no inheritance tax on the first death between spouses.

There is no capital gains tax because the spouse will be living in her own residence and get principal private residence relief. There’s no income tax to pay. There can be tax implications if the spouse does not live in the property, but that’s an unusual situation.

What happens to the mortgage if my house is in a Trust?

The mortgage doesn’t change. What changes is the amount of assets which end up in the Trust. If one person dies and leaves half of the property in their Will into the Trust, the value of the asset will be reduced by one half of the mortgage.

Is putting a house into a Trust difficult?

It’s a matter of process. We’re talking about putting half a property into the Trust when someone dies. That means going through a conveyancer or a solicitor to transfer that half of the property into the names of the Trustees at the Land Registry. This is something that a conveyancing solicitor will do each and every day of their life. It’s a simple instruction and will usually cost less than £1,000.

What should I do if I’m interested in a property Trust?

You should talk to an adviser. We will talk it all through with you without any expectation for you to make a decision, and without any cost for the consultation. We will ask you what your personal circumstances are and talk through what you expect for your beneficiaries.

We’ll explore what your children’s situation is, whether you’ve got grandchildren or you expect to, and what your priorities are.

If your priorities are to protect the assets for your bloodline – your children and grandchildren – we will probably recommend a Trust which takes in your property or one half of your property on first death.

We can also talk about Trust Wills which take in all of the property on second death to protect the whole property from being lost if your children later get divorced, become bankrupt or have problems with drugs.

The last thing to say is that in those circumstances, using a flexible family Trust Will can give you the opportunity to save inheritance tax on a generational basis. I talk more about this in the nil rate band discretionary Trust podcast – so I’ll welcome you to join me there.