Our solicitors are often asked: “Should I put my house into a trust to protect it from care home fees?”
This is a common question, and we completely understand why. For most people, their home is their biggest asset, and it’s natural to want to protect it - whether that’s for your own security in later life or to make sure it passes on to your loved ones.
It sounds like the best idea. But in most cases, putting your home into a trust while you’re still living in it isn’t in your best interests. In fact, it can cause more problems than it solves.
Firstly, what is a trust?
A trust is a legal arrangement where you transfer ownership of an asset - such as money, investments, or property - to be looked after by other people (called trustees) for the benefit of someone else (called the beneficiaries).
For example, you might put money into trust for your children, with trusted family members or professionals managing it until the children reach a certain age.
There are lots of different types of trusts, and they can be useful in estate planning, protecting vulnerable beneficiaries, or managing inheritance tax. But they can also be complex, with strict legal and tax rules attached. That’s why it’s so important to get proper advice before setting one up - especially when it involves your home.
Why people think about putting their house into a trust
People usually consider trusts because they want to avoid having to sell their home if they ever need long-term care. Others are motivated by the desire to pass their house on to children or family members in a tax-efficient way. Some people are simply looking for a way to make things simpler for their loved ones when the time comes.
These are all very sensible concerns - but using a trust may not be the right answer.
The problems with property trusts
One of the biggest issues is that the council can overturn the trust. If you need care in the future, the local authority will look very closely at any trusts you’ve set up. If they believe that one of the reasons for creating the trust was to avoid paying care fees, they can simply ignore it. This is known as ‘deliberate deprivation of assets,’ and it means the trust will not give you the protection you were hoping for.
Another problem is that trusts don’t always help with tax. Some people assume that putting their house into trust will reduce inheritance tax. This rarely works in the way people expect, as if the donor carries on living in the property the full open market value of the property as at the date of their death will be added back into their estate when Inheritance Tax is calculated and a Grant of Probate application will still be required. Fundamentally there are usually better legal and financial options to explore.
The trust will need to be registered with the Trust Registration Service at HMRC and depending on certain factors, tax returns may need to be completed on an annual basis and if the property remains in the trust long term the trust will be liable for a ten yearly charge.
Finally, placing your house into a trust can mean you lose flexibility. Once the property is in trust, you may no longer have the same control over what you can do with it. If you later decide that you want to move, downsize, or sell the property, things can quickly become complicated.
If not a Trust, what should you do instead?
The good news is that there are other, more reliable ways to plan ahead, without the risks that come with trusts. For example, making a clear and up-to-date Will ensures that your wishes are properly recorded and followed. You may also want to consider putting Lasting Powers of Attorney in place, so someone you trust can make decisions for you if you are unable to do so yourself.
Other estate planning options are available that may be more suitable for your circumstances and genuinely protect your family’s interests. There are also legitimate tax planning strategies that can stand up to scrutiny without creating the risks that trusts often bring.
How Coles Miller can help
Everyone’s situation is different, as there isn’t a one-size-fits-all solution. That’s why it’s so important to get proper legal advice before making big decisions about your home and your future.
Our friendly and experienced Private Client team can explain your options clearly, help you avoid costly mistakes, and give you peace of mind that your property and family are properly protected.
Thinking about putting your house into a trust? Talk to us first. We’ll give you the clear, practical advice you need to make the best choice for your future.
Talk to the experts at Coles Miller
