HOME PROTECTION TRUST"Ensuring the family home, stays within the family"
Why would I do a Home Protection Trust?
When making a Will, most clients wish for their property to pass down to their children and grandchildren. Unfortunately, even with a valid will in place, there are many reasons why this may not happen. For example, if a house is passed to a child and they are subsequently divorced the property could pass to their ex-partner. What if they had financial difficulties or needed care? In fact, there are many reasons why the family home may be lost to a third party.
With a “Home Protection Trust” it is possible to simplify the administration of your estate and protect the family home for up to 125 years. A Home Protection Trust is designed to allow the owner(s) of a property to keep control of, and continue to reside in a property whilst adding a degree of protection against unforeseen future complications.
What are the benefits?
REDUCE COSTS
Where a property is transferred into a trust during a client’s lifetime, the costs involve in estate administration following their death are significantly reduced.
AVOID CARE FEES
Where a beneficiary requires either residential or nursing care in later life, the family home (or proceeds of sale) could instead pass to the local authority to cover their care fees. By putting a Home Protection Trust in place this could be avoided.
TRUSTEE CONTROL
When you have trustees in place, they can help to manage the property on your behalf. As we grow older, it can be useful to have others take responsibility for, and help manage the property on our behalf.
BANKRUPTCY
After inheriting property, if a beneficiary later has financial difficulties or they have to go through bankruptcy, the property may be lost to the beneficiary’s creditors. A Home Protection Trust can help to avoid this.
SIMPLIFY ADMINISTRATION
Where a property forms part of a person’s estate, there is more to deal with. If a property is held on trust, the administration process is quicker and simpler.
Assets held in trust do not have to go through probate. This will save the family the burden and stress of the probate process, at what would already be a very difficult time.
FUTURE DIVORCE
If a beneficiary gets divorced after inheriting property, a share of the property may be lost to their former spouse. Where the property is held in a Home Protection Trust, this can often be avoided.
CLAIMS AGAINST THE ESTATE
We sometimes see clients who do not wish to leave anything to their child/children under their Will. Under legislation, the child/children have a right to contest things and make a claim against the estate. Depending on the circumstances, these claims can often be successful.
Making a claim against assets held in trust is a lot more difficult. This ensures that the property is protected for the people that you want to look after.
Frequently Asked Questions
A trust is an arrangement where a person (the settlor) transfers an asset, for example the family home, to someone else (the trustees) for safekeeping. These arrangements have been recognised in law for hundreds of years, and have many potential uses.
Anybody who owns their home (with or without a mortgage) can benefit from a Home Protection Trust. It can be particularly beneficial where:
- There is a desire to simplify administration and reduce administrative costs on death; or
- It is preferable that the family home passes to the children or other beneficiaries without exception; or
- A beneficiary may “waste” funds due to lack of maturity or “lose” money due to lack of financial acumen; or
- There is the possibility of a beneficiary divorcing in the future; or
- Beneficiaries received means tested benefits or support.
It depends on what you hope to achieve – provided the trust is not created to avoid a specific or foreseeable liability, then there should be no problems. For example, if it is clear that existing financial problems are likely to result in bankruptcy, the transfer of assets into trust could be overturned following a challenge by creditors. Equally, if health issues are likely to result in a need for residential or nursing care, the Local Authority could challenge the validity of the trust.
A mortgage or a charge against the property does not prevent the property from being placed into trust.
When a property is transferred into a trust, it is put into the name of people called “trustees”. Trustees have the responsibility of looking after the property for the beneficiaries. Clients often appoint their children as trustees; although professionals can also be appointed. A common misconception is that a beneficiary cannot be a trustee, but this is simply not true.
Trustees cannot do whatever they like. They must always act in accordance with the terms of the trust deed. For example, they must allow the settlor to remain in the property and allow them to move home if they wish.
Yes, but it would be your trustees that are required to sign the relevant paperwork.
A “Home Protection Trust” is specifically designed to protect the family home. Whilst it is possible to transfer other assets into a Home Protection Trust, it may be necessary to take additional advice; especially where the other assets are income producing e.g. a buy to let property.
The trust is paid for by a single payment at the time of drafting, and often there will not be any additional costs moving forward. In fact, the trust is designed to reduce costs in the long-term; particularly the costs of estate administration on the death of the settlor. However, there may be further fees should the settlor wish to move home as the trust would need to be amended. Also, if the house is sold after the settlor’s death and the sale proceeds remain in the trust, there will be fees to produce annual reports and tax refunds for the trust.
It is rare that we would recommend that a client makes an outright gift of their home. Consider what would happen if following the gift, the recipient was to go bankrupt, pass away or divorce. Apart from losing control, the client could also lose their home. Without the protection and safeguards afforded by the trust, gifting your home could present a serious risk.
Yes, and no. As the settlor retains a “life interest” in the property, it remains part of the settlor’s estate for inheritance tax purposes. However, as the trust continues after the settlor’s death, the trust assets will not be taxed as part of the beneficiaries’ estates when they pass away. This can be a significant advantage over the long-term; potentially saving tens of thousands of pounds.
The settlor decides who the beneficiaries are when the trust is created. This may be children, grandchildren or a charity for example. It is also possible to add additional beneficiaries at a later date.
It is the beneficiaries who will effectively inherit the property after the settlor passes away. Also, the trustees have the flexibility to change the distribution depending on the circumstances of the beneficiaries at the time. It is this flexibility that makes the trust so effective.
