Should I Put My Home In Trust?
Posted on 6th June 2022 at 11:13
A recent case highlights the need to carefully consider your actions before you decide to give up your family home to a Trust in your lifetime. You may know someone or have already decided to do this to protect your main asset for your loved ones.
Serious consideration must be given before you decide.
Trusts can be an amazing tool, when used in the right context, but it’s not right for everyone. Your individual circumstances must be considered as one size doesn’t fit all.
In this instance the couple were advised to create an asset protection Trust, with the sole intention of avoiding care home fees. The couple were concerned their home would be taken to fund it leaving the other homeless.
They appointed their sons as Trustees, effectively giving up the ownership to the Trust.
The Trust was created in 2020. It was only during this process they realised the property was in the sole name of the Husband. In 2021 HMRC contacted the Husband and presented him with a huge tax bill. The property being in the client’s sole name means the transfer to the Trust triggered an IHT liability as the property exceeded £325,000 nil rate band at the time the Trust was created.
Assets put in Trust are subjected to 50% of the current IHT threshold (40%) when the value exceed £325,000 which is payable immediately on creation of the Trust. Every 10 years there is also an anniversary charge and when the Trust end a further 20% IHT is payable. This could have been easily avoided!
The clients could have considered the alternatives allowing them to make an informed decision. A married couple could consider putting the property into both names as joint tenants or as tenants in common meaning the first person in the relationship needing care would not have the house taken into consideration whilst the other remains living there.
The creation of a Will can also provide a level of protection if a Protective Property Trust is considered. In this case the Trust is only created on first death. (The property needs to be owned by 2 people for this).
Further restrictions for this couple means it’s almost impossible to raise money on their property through re-mortgage or equity release as no known lenders will lend to a Trust.
Should the couple wish to move they will need to seek the approval of the Trustees.
Should the couple require care in the future, the stated reason for the Trust was to avoid care home fees which is a ‘deliberate depravation of assets’ and would allow the respective councils to challenge the Trust.
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