When considering ways to manage your property and estate planning, putting a house into trust is a popular option. Trusts can provide flexibility, asset protection, and tax advantages, but they come with important considerations. This guide explores the key points, compares different types of trusts, and explains how to decide which trust is right for your needs.
What Does It Mean to Put a House into Trust?
Placing a house into a trust involves transferring ownership of the property to the trust, which is then managed by trustees on behalf of the beneficiaries. This process can serve various purposes, including safeguarding the property for future generations, reducing tax liabilities, and protecting it from potential claims such as care home fees.
Will Trusts vs Lifetime Trusts
The type of trust you choose depends on your goals and circumstances. Here’s how Will Trusts and Lifetime Trusts differ:
Will Trusts:
Established Upon Death: Will Trusts are created through your Will and only come into effect after you pass away.
Purpose: Commonly used to provide for minor children, protect vulnerable beneficiaries, or ensure a surviving spouse’s needs are met while safeguarding the property for other beneficiaries.
Flexibility: Can include terms to adapt to changing circumstances after your death.
Lifetime Trusts:
Established During Your Lifetime: These trusts transfer the property into the trust while you’re still alive.
Purpose: Often used to protect assets from care fees, avoid probate, or manage inheritance tax planning.
Immediate Impact: The property is no longer considered part of your estate for probate purposes but may still be assessed for other taxes.
Discretionary Trusts vs Interest in Possession Trusts
The structure of the trust dictates how the property and its income are managed and distributed:
Discretionary Trusts:
Trustee Control: Trustees have full discretion over how and when to distribute income or assets to beneficiaries.
Flexibility: Ideal for complex family situations or when beneficiaries’ needs may change over time.
Tax Implications: Assets held in a Discretionary Trust may be subject to periodic inheritance tax charges.
Interest in Possession Trusts:
Beneficiary Rights: A specified beneficiary has the right to live in the property or receive income generated by it during their lifetime.
Capital Preservation: The property itself is preserved for other beneficiaries after the life tenant’s death.
Tax Implications: Income generated by the trust is taxed at the beneficiary’s rate, offering some tax planning opportunities.
Key Considerations When Putting a House into Trust
Tax Implications:
Trusts can provide inheritance tax advantages, but they are subject to complex tax rules. Lifetime Trusts may trigger immediate stamp duty or capital gains tax liabilities.
Care Home Fees:
While putting your house into trust may protect it from being sold to pay for care fees, it’s important to note that you cannot deliberately deprive yourself of assets to avoid paying for care. Local authorities can investigate such transfers under "deprivation of assets" rules, and if they determine the transfer was made to avoid care fees, the value of the house may still be included in your estate for assessment purposes.
Control and Flexibility:
Transferring a property into trust means relinquishing ownership, so it’s essential to consider how much control you’re willing to give up.
Costs and Administration:
Setting up and managing a trust involves legal and administrative costs. Ensure these are factored into your planning.
Trustee Selection:
Choose trustees who are reliable, capable, and understand your intentions for the trust.
How Toucan Law Can Help
At Toucan Law, we specialise in estate planning and trust creation. Our expert team can guide you through:
Choosing the right type of trust for your needs.
Understanding the tax implications of transferring your house into trust.
Drafting legally sound trust documents tailored to your goals.
Make an Informed Decision
Putting a house into trust can be a powerful estate planning tool, but it’s essential to understand the options and implications fully. Whether you’re considering a Will Trust or a Lifetime Trust, a Discretionary Trust or an Interest in Possession Trust, professional advice is invaluable.
Contact Toucan Law today to discuss how trusts can work for your estate planning needs and ensure your property is protected for future generations.
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