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Beware of Gifting Your Property Into A Trust

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Beware of Gifting Your Property Into A Trust

Recently, I have seen a number of cases where people have used non-qualified organisations or companies to gift their homes into trust on the pretence that this will provide protection from probate fees; divorce claims; estate claims; and care fees - just to name a few.

However, there are some significant disadvantages to gifting your property into a trust which need to be carefully considered before anyone makes this decision:

  1. Firstly, from an inheritance tax point of view the relevant transfer of the property into the trust could be caught by the ‘gift with the reservation of benefit’ rule, if you still continue to live in the property. Although, the property would be no longer in your estate, it may still be counted from an inheritance tax point of view as being within your estate, unless you pay rent to the trustees. In addition, the property would be liable to capital gains and disposal if owned by a trust as the property could lose its principal private residence relief.
  2. Secondly, you are making yourself vulnerable in your own home. You no longer own the property as it is held by the Trustees of the Trust and therefore if you ever wished to release money from your property in the future, say by down-sizing, this is a lot more difficult as the surplus money will form part of the Trust assets. Furthermore, as is common with a number of the companies offering these services, they often appoint themselves as Trustees, which again makes releasing monies from the Trust difficult if the Trustees themselves become difficult with you.
  3. If you did have to enter into care in the future, the transfer into trust could be seen as a deliberate deprivation of assets and could potentially be reversed by the local authority, to the extent that they treat you as technically owning that property when assessing the care home fees you need to pay. There is, strictly speaking, no limit on how far they can go back to look into assets people have given away and you can therefore find yourself in a difficult situation, whereby the local authority assess you as having monies to pay for care home fees, yet the property is in Trust.
  4. Also, many people wish to live in a care home of their choice and they therefore may wish to top up their fees. Transferring your home into a trust may therefore potentially unduly disadvantage you.
  5. There can also be significant fees in setting up and running these types of trust which may ultimately not work. These types of schemes offered by a number of companies are by no means cheap and usually have on-going charges year on year. Furthermore they are not foolproof, as some of the providers would lead you to believe.

Every case needs to assessed on its own facts and merits, these types of trust are not suitable for many. There are usually tax consequences which need to be addressed and considered in detail.

The issues surrounding protecting the family home are complicated– so please do err on the side of caution. I would advise you seek independent legal advice before making a decision in relation to your home and it may also be necessary to seek independent financial advice. That way you can ensure that you have obtained advice on your individual circumstances.

There also may be other alternatives, such as if you are part of a couple, setting up life interest trusts within your Wills. These types of trust aim to protect the deceased’s half of the property when one of the couple passes away.

If you have any questions about Trusts and gifting your property – please do give me a call on 01908 660966, or drop me an email.