Putting A House In A Trust – Should You Do It?
In the UK, placing a house in a trust involves a legal arrangement where ownership of the property is transferred to a trust. According to UK legislation, a trust is a distinct legal entity responsible for holding assets for the benefit of others. The “settlor” refers to the individual who creates the trust by transferring assets into it. The “trustee” is the person or entity responsible for managing the trust and its assets for the benefit of the “beneficiary” – the individual or group entitled to the trust’s assets or income.
The terms “revocable” and “irrevocable” refer to the flexibility of the trust. A revocable trust allows the settlor to make changes or revoke the trust, while an irrevocable trust, once established, cannot be modified or revoked.
Benefits of Putting a House into a Trust
Asset Protection
Placing a house in a trust can shield it from potential risks, such as creditors or legal claims, providing a layer of asset protection for the beneficiaries.
Avoiding Probate
One key advantage is the potential to bypass probate, a legal process that validates a will, allowing for a quicker and more private transfer of assets to beneficiaries.
Tax Benefits
Trusts can offer tax advantages, such as mitigating inheritance tax, capital gains tax, or stamp duty.
Maintaining Control
While transferring the house to a trust, the settlor can retain control over how the assets are managed and distributed, even after their passing.
Drawbacks of Putting a House into a Trust
Cost
Establishing and maintaining a trust involves various costs, including legal fees, stamp duty, and registration fees.
Loss of Control
Once the house is in a trust, the settlor may have limited control over the property, as the trustee manages it on behalf of the beneficiaries.
Complexity
Managing a trust can be complex, requiring adherence to legal formalities and ongoing administrative responsibilities.
Limited Flexibility
Irrevocable trusts, once established, cannot be altered, limiting flexibility for future changes in circumstances.
Steps Needed To Put a House into a Trust
Choosing a Trustee
Selecting a responsible and trustworthy trustee is crucial as they will manage the property according to the trust’s terms.
Create the Trust Deed
A legal document outlining the trust’s terms and conditions needs to be prepared, specifying how the property will be managed and distributed.
Pay Associated Costs
Ensure all legal fees, stamp duty, and registration fees associated with setting up the trust are paid.
Inform HMRC
It’s essential to inform Her Majesty’s Revenue and Customs (HMRC) about the trust’s creation and potential tax implications.
Complete the Trust Deed
The trust deed needs to be executed, signed, and witnessed as per legal requirements.
Appoint Trustees
The settlor appoints trustees who will manage the trust and the house within it.
Keep Records
Maintaining accurate records of trust-related activities and transactions is crucial for compliance and transparency.
So should you put your house in a trust?
The decision to put a house in a trust is complex and should be made after careful consideration of the advantages and drawbacks. While it offers substantial benefits in terms of asset protection, avoiding probate, tax advantages, and maintaining control, the process involves costs, potential loss of control, complexity, and limited flexibility. If you are interested in a housing trust get in touch with our legal team who can help you make an informed decision that suits your individual circumstances.
Read more about the four types of property trusts.