Putting Your House Into a Trust: Is It Worth It?

There are different ways to pass on your wealth to others.

Putting your house into a trust is one way of doing this.

So, what exactly is a trust? And is putting your house into one worth it?

Read on for answers to these questions and more.

What does it mean to put your house into a trust?

Putting a house into a trust means transferring ownership of it to a legal entity (the trust).

The person who sets up the trust (referred to as the settlor) will appoint a trust (run by trustees) to manage a property on behalf of a named beneficiary.

In other words, the trustees will manage the property in the trust for the beneficiary on behalf of the settlor.

There are two types of trust in the UK.

Revocable trusts: The settlor can make changes to this kind of trust after it is set up and can also revoke it if they wish to
Irrevocable trusts: The settlor cannot change the terms or revoke this kind of trust

The settlor pays legal and other fees to put their property into a trust. And most do this to transfer wealth or assets to their children or others.

Advantages of putting properties into a trust

1. Protecting the beneficiaries’ best interests

Trusts enable settlors to oversee the transfer of property ownership responsibly.

Age is often a factor in this. For example, the singer David Bowie had two children of different ages when he passed away in 2016.

The eldest (then aged 44) immediately received his share of the inheritance. The youngest (then aged 15) would receive hers nine years later via a trust when she reached age 24.

The settlor’s principles or concerns about beneficiaries’ behaviour might also be a factor.

To counter this, settlors can set up specific conditions or limits. In the UK, this is referred to as a protective trust.

2. Bypassing the probate process

One of the main advantages of putting property into a trust is that it enables beneficiaries to bypass the probate process.

In most instances, probate can take at least six months and involve fees associated with the probate process.

3. Tax advantages

Putting properties into trusts offers tax advantages, which the right experts can help settlors and beneficiaries take advantage of.

It can mean, for example, an avoidance or reduction of Inheritance Tax when the settlor passes away.

Disadvantages of putting your house into a trust

1. Fees

Putting a house into a trust involves paying an initial fee to the law firm and ongoing costs for its administration.

2. Loss of property ownership

By definition, transferring a house into a trust means the settlor is no longer the legal owner of the property.

This limits their control over it. This might become a problem under certain unforeseen circumstances.

However, the settlor can still retain some control if they are also a trustee or have set specific terms in the trust agreement to cover certain events.

How to put a house into a trust

1. Appoint a trustee

The first step is to decide on and then appoint a trustee. This is typically a law firm, but you may also choose an individual (such as a loved one).

2. Create a trust deed

A trust deed is a document that outlines the terms of the trust, including:

Who the beneficiaries are
What the beneficiaries will receive
Conditions for the trust
Timeline of the transfer of the trust’s property

A legal expert can help you create this document.

3. Sign a transfer deed

From here, you will sign a transfer deed. This transfers the property into the trust.

You will need to register this transfer with the Land Registry, too.

4. Pay any associated costs

The fourth step is to pay any associated costs to the trust, including set-up and maintenance fees.

5. Notify HMRC

You must inform HMRC about the trust, as there can be Stamp Duty implications.

6. Ongoing monitoring

Once the above steps are complete, you should oversee the trust to ensure it is appropriately administered.

This includes checking records of all transactions and decisions the trust makes.

Should I put my house into a trust?

You should seek guidance from qualified experts in this area before making a decision.

Several factors should be considered in relation to your own and potential beneficiarys’:

Financial circumstances
Legal situations
Moral principles
Relationships
Age
Other personal circumstances

You may be less inclined to pay for a trust if you are currently experiencing cash flow challenges.

On the other hand, for valuable properties (or property portfolios), even a tiny percentage of tax payments via probate may represent a large sum.

Alternatives to putting your house into a trust

Alternatives to putting a property into a trust include:

Gifting a property to a relative or friend: This involves costs, including including legal fees and tax implications. However, it can also provide a channel for the secure transfer of wealth and help avoid capital gains tax.
Putting your property into a company name (via Buy to Let): This can offer some tax advantages and liability protections. However, it also involves administrative costs and compliance with corporate regulations.
Creating a life estate: This allows someone to live in a particular property for the rest of their life while transferring ownership to someone else. It can help the latter party avoid probate.