Putting Half Your House In A Trust
If you own a property jointly with another person, you can place one-half of the property in Trust, while you are alive.
This gives protections, but there are also restrictions in the future.
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Putting Half Your House In A Trust
Ian Winterbotham explains how putting half of your house in a Trust works.
What’s the relevance of this topic?
We’ve just gone through a podcast for single people putting the whole of their property into a Trust. We’re now changing tack to look at the more common situation where you own a house jointly, and you’re thinking of putting half of it into a Trust.
Can I put just half of my house into a Trust?
Yes. If you own a property jointly with another person, you can place one-half of the property in Trust. That other person could be your spouse or whoever else owns the property.
If jointly owned, do both owners have to agree if one person wants to put their share of a house in a Trust?
No, and this is a key question. If you’re separating and have fallen out with the other owner, or perhaps it’s a business arrangement, you can sever the tenancy unilaterally.
A joint tenancy becomes a tenancy in common as soon as a valid notice of severance is served on the other owner. Their signature or agreement is not actually required. After serving the notice, you can then register the change at HM Land Registry, and the title will reflect the severance.
There’ll be a ‘Form A’ restriction showing at the Land Registry, which means that the named proprietors own the property as tenants in common.
How do I work out the value of my half of the property for the Trust?
You draw up a Declaration of Trust document to declare what assets are held in the Trust. You can say it holds your half of the property – and you could even limit the value of your share in the property to a specific amount.
If a property is worth £1 million and your share is £500,000, you won’t want to put all of that into a Trust today because there would be tax to pay straight away. You might want to limit the assets in the Trust to a value of £325,000 to avoid the possibility of certain Trust taxes.
Or, you might want to limit the assets in the Trust to a value below £325,000 to ensure that your half of the property is dealt with by your Will and can form part of the Residence Nil Rate Band allowance for your children or grandchildren. That makes sure they can save the full amount of inheritance tax in the future. This is an area where you need to take advice and care.
Does putting half the house in a Trust affect the other owner’s rights?
It leaves the other owners’ legal rights over their share fully intact. It’s awkward for the other owner, potentially, because they will need the Trustees to cooperate in any major decisions.
People don’t always think about this, but usually it’s not possible to get a new mortgage on a property if part of it is in Trust.
Will the other owner become a Trustee, or can I choose someone else?
You can choose whoever you want. Typically, if it’s a husband and wife or civil partners, the other owner can and would normally be a Trustee. But equally, you can choose someone else.
Often, the Trustees are the two owners and two of their children, to a maximum of four Trustees in total.
Does putting half the house in a Trust protect my share from care fees?
We would not recommend setting up a Trust in your lifetime to avoid care fees. The lifetime Trust must be set up for other reasons.
It may be helpful to protect vulnerable beneficiaries like a child or adult with a disability, a financially vulnerable beneficiary, a beneficiary with addiction or debt issues, or a beneficiary going through divorce or bankruptcy. You don’t want to leave the asset directly to them and see it end up in someone else’s hands.
Equally, if your children are businesspeople and are putting all their assets aside to be able to borrow money, it’s nice to know that those assets would not go directly to them – they would remain in the Trust.
The crucial difference between putting your house in a Trust during your lifetime or leaving it in your Will comes down to understanding the Deprivation of Assets rules. Deprivation of Assets is when a person intentionally reduces the value of their assets to avoid them being counted in a financial assessment for social care. This is the care fees area you mentioned.
Local authorities carry out means testing to decide how much someone must contribute towards their care. If they believe a person has deliberately reduced their assets, they can treat it as if they still owned those assets when calculating the contributions. They may need to go to the courts first to do that.
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What happens to the Trust if the co-owner dies?
The Trust can continue for 125 years after it’s settled. The co-owner’s share of the property,
which isn’t in a Trust, will be dealt with by his or her Will, or in accordance with intestacy rules if there is no Will.
The half of the property you’ve settled into a Trust will continue to be in that Trust. If the property is sold, the Trust is entitled to the proceeds from the sale. Of course, you can decide what happens to those proceeds. Usually, the Trust will lend money out – so you can have your cake and eat it.
You can invest the money or spend it as you wish, or keep the proceeds in the Trust and use them to buy another property. Thereby, the Trust would just continue, and the protections would remain.
What happens if I die first and only my half is in the Trust?
The Trust assets – your half of the property – would be administered by the Trustees. The Trustees don’t even need a grant of probate to do that.
Usually, the Trustees have discretion – as a discretionary Trust, they would look at a letter of wishes to see what you, as the settlor, wanted to happen after you’ve died. Remember that you must trust them to follow your wishes.
Can I still sell the house if only my share is in a Trust?
All Trustees must agree. As I mentioned before, you have the power usually to remove Trustees if they don’t go along with your wishes.
You can still sell the house if only your share is in a Trust, as long as the co-owner also agrees to sell. That would be the case in any sale.
Does putting half the property in a Trust affect mortgage or remortgage options?
It really does. This is something to carefully consider, because it’s not usually possible to get a new mortgage on the property if part of it is in Trust. That can make things awkward for people who are still working and hoping to get a new mortgage during their working lives.
You cannot rely on remortgaging the property either, as many people do to get a better deal. Think carefully before settling half your property into a Living Trust because it could make things difficult on the mortgage front.
How does this affect inheritance tax on my share of the property?
You need to take advice on this. There’s something called the Residence Nil Rate Band, which is an allowance your children or grandchildren can claim to reduce inheritance tax.
As you may be aware, a couple can own up to £1 million in assets and the children need pay no inheritance tax, as long as certain rules are adhered to. One of these is that they must inherit property from you directly and not through a Living Trust.
It doesn’t have to be the whole property, just £175,000 of your half. If you own a property worth £800,000, your share is £400,000, you may only want to put £275,000 worth of your share into the Trust. You then leave £175,000 directly to the children and hope the property value goes up.
Can the Trustees stop the joint owner from making changes to the house?
I should think they can, but the owner must have certain rights as well. I haven’t come across that, so I don’t know the details.
It shows that Lifetime Trusts can be awkward if the joint owner is not your partner or spouse and family, especially if the Trustees are determined to make things difficult. Usually, agreements would be made. The Trustees may need to have a meeting and keep minutes about those.
Can I remove my half from the Trust later if I change my mind?
I’m assuming that you have settled the assets into a Trust that will give you the powers to disband it. All Trustees would have to agree, but you would normally have the power to change the Trustees if they were awkward.
How do I put half my house in a Trust? What’s the process?
You or a legal professional will need to draw up three documents – the Trust document, the declaration of Trust declaring what assets go into the Trust, and a letter of wishes. You also need to make sure you keep minutes about any decisions that are made.
The next step would normally be to apply to the Land Registry to add the Trustees as proprietors. It’s important to understand that they are not beneficial owners of half the property, but they are legal owners as far as the Land Registry is concerned. They will need to sign documents if the property is sold or any changes need to be made.
That’s the main questions covered – anything else you’d like to add?
I’ve seen this work well for people who are very clear about what they want to achieve. You must trust your Trustees, so choose family members who will be capable of administering the Trust and will follow your wishes, without being influenced by other people.
Be aware that there are extra costs and paperwork down the line. It’s not quite as simple when you sell the property, but you still go through the normal process of going to an estate agent, finding a buyer, and the paperwork is done by conveyancing solicitors.
You do not necessarily need to choose the cheapest online solicitor. You need to find a solicitor who understands these Trusts to make sure it’s all done correctly.
Key Takeaways:
- You can place your half of a jointly owned property into a Trust without the other owner’s agreement by unilaterally severing the joint tenancy to a tenancy in common.
- Lifetime Trusts are primarily recommended for protecting vulnerable beneficiaries (e.g., against debt, addiction, or divorce) rather than for avoiding care fees.
- Putting half the house in a Trust makes obtaining a new mortgage or remortgaging the property generally impractical.
- To benefit from the Residence Nil Rate Band for Inheritance Tax, a portion of the property must be inherited directly and not through a Living Trust, requiring careful planning of the asset value placed in the Trust.
- The process involves drawing up three documents (Trust document, Declaration of Trust, Letter of Wishes) and registering the change at HM Land Registry to add the Trustees as legal proprietors.