Home protection trust

Home protection trust

This page was last updated on 1 November 2020

Home Protection Trust

This trust is as also called an asset protection trust or property protection trust.

Protecting assets in a trust is a good option for wealth management and getting control over who inherits from your estate.

People also may set up this type of trust to avoid care home fees or for inheritance tax purposes.

Topics that you will find covered on this page

What is a trust?

A trust is a legal arrangement whereby one person, the trustee, holds the property on behalf of another person, the beneficiary. The assets will therefore not form part of your estate, they will be held by the trust.

What is a home protection trust?

Solicitors use the terms home protection trusts, property protection trusts and asset protection trusts differently. 

The term home protection trust can be used for a trust you create during your lifetime, or testamentary trusts you set up in your will.

Here is a short video on how you can use a trust to protect your home and property.

What type of trust is a home protection trust?

Trust wills and lifetime trusts can hold property in two ways, which have different tax consequences. These are:

  • Discretionary where the trustees have more power to decide which beneficiaries get what, and when. Generally, the person who makes the trust will write a letter of wishes that the trustees have to consider when distributing assets among beneficiaries.
  • Fixed interest, where the beneficiary has an absolute right both to income and occupation.

What is a wills trust?

A wills trust only comes into effect after your death. If you and your partner are joint owners of your family home, you can write a will trust so that when one spouse dies, their half of the home goes into a trust.

Having part of the property in trust will mean the other spouse can live in the house till the end of their life but do not own the whole thing. Then when the second spouse dies, the whole property can be passed onto your children.

Why would you want a wills trust?

This type of home protection trust is useful to safeguard your assets so you pass on as much of your property to loved ones and family members as possible.

In cases where the surviving spouse is assessed for care costs, then the half of the home that is held on trust will not be included.

A property will trust can also give you more control over who inherits from your estate, and prevents situations where your surviving spouse remarries and has new children, who would then be entitled to inherit, and your own children could be left out.

protecting assets in a trust

What is a life interest trust?

Lifetime trusts are similar, however, you make them while you are alive. This can mean that you might avoid having to pay for care home fees, as the property in the asset protection trust will not be assessed for care funding.

What does it mean when you put your house in trust?

Putting your house in trust does not mean you cannot live in it or take it out of trust and sell it. It just means that legally, the ownership of the house is divided, so the trustees get the legal ownership, and the beneficiaries get the use of the house.

"If your assets are in a trust, you do not legally own them, as a trust is a different type of ownership. Therefore you may be able to avoid the local authorities' care fees."

Why would I set up a home protection trust?

The main reason people put their house on trust is so that when local authorities assess your estate for care fees, your house is not included in this assessment. There also may be a tactical inheritance tax purpose of setting up a trust, though this benefit is less with new rules.

Can I set up a home protection trust to avoid care fees?

If your assets are in a trust, you do not legally own them, as a trust is a different type of ownership. Therefore you may be able to avoid the local authorities’ care fees.

home trusts

Are property protection trusts legal?

Setting up a property protection trust is legal.

However, deliberate deprivation of assets, which includes putting property into trust to avoid care home fees is not legal,  and if the local authority suspects this, such as if your health was deteriorating when you made the transfer into the trust, they have the ability to factor the assets in the trust into their assessment anyway.

Are family protection trusts a good idea?

For many people, a family protection trust is an important aspect of estate management. However, there are pros and cons to setting up a family protection trust, so you should make sure you have properly done your research and are not being mis-sold.

What are the advantages of home protection trusts?

There are a number of reasons to set up this type of trust:

  • Possible inheritance tax reduction, depending on the trust arrangement and your nil-rate band
  • You may avoid paying care fees
  • Protecting against sideways disinheritance, so you have control over your inheritance after your death
  • Less risk than simply giving your property to a family member
  • You can appoint trustees you trust to safeguard your interests
  • If there is a trust, probate may be easier for your executors after your death, saving time and money
  • You can ensure the survivor can continue living in your house

What are the possible disadvantages of home protection trusts?

Before setting up an asset protection trust, it is important to take into account a number of possible pitfalls and limitations:

  • The cost of paying a solicitor to draft the trust document. You may have to pay conveyancing fees every time you transfer assets in and out of the trust
  • The complexity of the administration of a trust
  • The problem that if the council thinks there has been a deliberate deprivation of assets for the purposes of avoiding care fees, such as if the settlor had knowledge their health was deteriorating when they set up the trust, they may gain nothing from having made a trust, as they will have to pay care home costs anyway
  • There can be tax consequences, especially capital gains tax. Since 2007, the inheritance tax (IHT) benefits are minimal. You may end up paying HMRC more.

What are the alternative estate planning steps I can take?

You could also give your house or any other asset to your relative as a gift with the requirement that they will look after your husband or wife.

However, there are risks to this, as there is a chance they may not do as agreed after you are deceased, and the gift may be lost if the beneficiaries, for example, face bankruptcy or get a divorce.

How do I set up a trust?

You need to get a solicitor’s services to set up a trust fund. There are numerous services offering this, and it is important to fully understand what the trust will be doing and the result this will have on your estate. 

You can also use an adviser or experts on estate management, who can help you decide how to manage your affairs and minimise the tax you have to pay

Would you like some help setting up a Trust or to have a free consultation on which Trust option is likely to be best for your circumstances?

You can contact us in one of 3 ways:

  • book an appointment directly in the calendar below, and one of the team will call you back at the chosen time
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Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – katy@helpandadvice.co.uk

LinkedIn – Connect with me

Learn about different types of Trusts that could also help you

Property Protection Trusts

This is a trust you put in your will so that the surviving spouse can continue living in your property, but the deceased’s share of the property is kept separate.

Interest in Possession Trusts

This is a trust where the trustee must give all the trust income to a beneficiary as the income is generated, except for trust expenses.

Inheritance Tax Planning Trusts

By putting your money and property into a trust, you can maximize your tax-free allowance and reduce the amount of inheritance tax you pay.

Life Interest Trusts

A life interest trust is a trust written into a will. This means that the trustees hold the assets in the trust on behalf of the beneficiaries. Read more about them.

Asset Protection Trusts

The benefits can include reducing the care fees payable to the local authority and have tax advantages. 

Home Protection Trusts

Protecting assets in a trust is a good option for wealth management and getting control over who inherits from your estate.

Inheritance Protection Trusts

The term ‘inheritance protection trust’ could describe many different types of beneficiary trusts. However, it usually refers to a trust for healthy, capable beneficiaries in a will.

Family Protection Trusts

A family protection trust is a method you can use to ring-fence your assets from taxation, care fees, and other risks to your estate. 

Estate Planning & Trusts

Estate planning involves considering what to do with a person’s money and assets after they are deceased.

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