How to set up a trust in the UK: putting a house into a trust

Trusts emerged out of a practical necessity during the Crusades. Knights required a reliable person to oversee their land and possessions while they were away. A trusted person would hold the titles and manage the knight's affairs until his return, or in the event of his death, until his sons reached an appropriate age to take ownership. Today, a trust is a way of gifting cash, a property or an investment to a beneficiary.

Placing assets into trusts can remove them completely from your estate, therefore avoiding any inheritance tax liabilities. A trust enables you to decide how your assets are used after your death. Trusts can applied to property, cash and investments, but not UK-registered pension schemes. 

Why should you have a trust?

A trust offers a reliable method for safeguarding family wealth. It grants you authority over your assets, even after your death. There are many benefits to having a trust, which are explored below.

Asset Protection

Trusts can shield assets from creditors or legal claims.

Estate Planning

Trusts are essential tools for estate planning, helping to reduce inheritance tax liabilities. 

Probate Avoidance

Assets placed in a trust typically do not go through the probate process, which can be time-consuming and costly. This means that assets can be distributed to beneficiaries more efficiently, avoiding the delays associated with probate.

Privacy

Trusts offer a higher level of confidentiality compared to wills. Trust details are not publicly disclosed, providing greater privacy for your estate planning decisions.

Putting a house into a trust

At Regulated Advice, the request to place a house, into a trust for the beneficiaries of the children is perhaps the most common. 

Indeed, putting a house into a trust is a great way to ensure that the house will remain in the family after the property owner has passed away. 

The property owner can name a trustee to manage the house and its assets. They would also name any beneficiaries, such as their children who will receive the house after the owner has passed away.

It avoids the need to sell the house, once the owner has passed away and avoids the need to pay any inheritance tax liability as the property remains outside of probate.

Advantages

1. Avoids Probate: Assets held in a trust are not subject to probate, which can be a lengthy and expensive process.
2. Tax Benefits: Trusts can offer tax benefits such as the avoidance of inheritance tax.
3. Control: The trustee has complete control over the assets held in a trust, which can help ensure that they are used to the wishes of the grantor.

Disadvantages

1. The cost of setting up a trust can be expensive.
2. Loss of control. The trustees will manage the house on behalf of the beneficiaries. Placing your principal family home into a trust could therefore be problematic. Trusts ideally work as a second property or an investment property.
3. Legally binding. The trusts can be difficult to change or alter once set up.

 

Steps for putting a house into a trust

1. Create the trust deed: This should include the trust’s objectives, the roles and responsibilities of the trustees, and how the trust can be terminated.
2. Transfer the property into the trust: This can be done by signing a transfer deed with the Land Registry.
3. Inform HMRC: Stamp Duty Land Tax may be payable.
4. Appoint trustees: A family member or solicitor is ideal. The trustees should be appointed in writing and their responsibilities set out in the trust deed.
5. Keep records: The trustees should keep accurate records of all transactions and decisions made by the trust.

 

Get Expert Advice

If your estate exceeds a million pounds, you have children and you own several rental properties that are mortgage-free, then the idea of setting up a trust, despite the expense and complexity, could certainly be compelling.

Setting up a property trust would give you complete control over how and when your assets are distributed.

Registering a trust is a crucial first step in ensuring the proper management of your estate.

While the process may seem complex and expensive, it's essential for inheritance tax planning purposes.

Consulting with a tax or financial professional who specialises in estate planning is advisable to ensure that trusts are set up and managed in a tax-efficient manner and compliance with current tax regulations.  

Whether you need help setting up a trust, Let Regulated Advice match you with a financial advisor for expert advice.