Placing a property in a trust is a legal arrangement that transfers ownership from an individual to trustees who hold the property on behalf of specified beneficiaries. It is sometimes used for estate planning, inheritance purposes, or protection of assets. However, the legal and tax implications are significant and specialist legal and financial advice is essential before proceeding.

What a Trust Involves

A trust is a legal arrangement where the settlor (the person placing the property in trust) transfers legal title to the trustees, who hold and manage the property for the benefit of the beneficiaries. The settlor can be one of the trustees and can retain certain rights over the property, depending on the type of trust. Common trust types used for property include bare trusts, discretionary trusts, and life interest trusts, each with different tax and legal implications.

The Transfer Process

Placing a property in a trust involves drafting a trust deed that sets out the terms, the trustees, the beneficiaries, and the powers of the trustees. The legal ownership of the property is then transferred to the trustees by way of a deed of transfer, registered at HM Land Registry. A solicitor specialist in trusts and estate planning should draft both the trust deed and the transfer deed. The trust deed needs to be carefully drafted to achieve the intended outcomes and to comply with the relevant legal and tax requirements.

Inheritance Tax Implications

Placing a property in a trust does not automatically remove it from the scope of inheritance tax. Transfers into trust may be chargeable transfers for inheritance tax purposes depending on the type of trust and the value of the property. Certain trust structures trigger an immediate inheritance tax charge if the value exceeds the available nil rate band. If the settlor continues to benefit from the property, it may still be included in their estate for inheritance tax purposes under the gift with reservation rules. A specialist tax solicitor or financial adviser should assess the inheritance tax position before the trust is created.

Care Cost Implications

Placing a property in a trust to avoid it being used to fund care costs is likely to be assessed as deliberate deprivation of assets by the local authority carrying out the financial assessment for care. If the primary purpose of the transfer was to reduce the value of assets for care funding purposes, the local authority can treat the property as if it were still owned. This is a complex area and specialist advice is needed.

Mortgage Considerations

If the property has a mortgage, the lender's consent must be obtained before any transfer into trust. Most residential mortgage lenders will not consent to the property being held in a discretionary trust while the mortgage remains outstanding. The trust structure must be compatible with the mortgage terms or the mortgage must be repaid before the transfer.

Summary

Placing a house in a trust requires a trust deed and a registered transfer of legal title, handled by a solicitor. Inheritance tax, care funding assessments, and mortgage implications require specialist advice before proceeding. The type of trust chosen significantly affects the tax and legal outcomes. Deliberate deprivation of assets to avoid care costs may be identified and reversed by local authorities.