What is a Property Trust?
Many people in the UK consider property trusts as a way to avoid care home fees. This is often not as sound an investment as it may appear. In this context, a Trust is an agreement with a company in which you transfer ownership and management of your property to them. This is legally binding, and terms will be drawn up in a trust deed.
Trust companies offer to look after your property for you. You can continue to live in your home rent-free even if it is in a Trust. Because this is seen as a ‘gift’, the Trust company will not buy your home from you. Instead they manage its sale and the proceeds from that sale when you move out or die.
When you set this up, you will compose a letter of wishes. In this letter, you’ll name your beneficiaries. These are the people you want to inherit your property or proceeds from its sale after you die. You’ll detail what you would like to happen to your property or the proceeds once it’s sold. For example, you may ask the Trust to sell your property if you ever move out. But, you may ask that your beneficiaries not receive their shares of the money from the sale until after you die.
How does a Trust stop me selling my house to pay care fees
Putting your house into a Trust will mean the Trust will own your house rather than a person. This means it cannot be taken into account as a financial asset when you are assessed to see what care home fees you can pay.
When you are planning to move into a care home, your local authority will conduct a means test. This is to see if you are eligible for funding. By removing your property from your legal ownership, your capital decreases. This may mean that you no longer exceed the upper limit that means you must pay for your own care.
Lifetime Property Trusts
A Life Interest Trust is set up through your will. It means that you can protect your home and ensure it is kept for your partner or children after you die.
In order to set up a Lifetime Property Trust you must own the property solely or as a couple as Tenants in Common.
The Trust means that when one half of couple dies, the surviving partner will still have the home for the rest of their life. If the surviving partner moves into a care home, only their portion of the home held under Tenants in Common can be used for care home fees
The share of the house from the first half of the couple who has died is protected and can be passed onto beneficiaries.
The terms of the Trust cannot be changed by the surviving partner once the first partner has died.
What are the disadvantages?
One disadvantage is the terms of the Trust cannot be changed once the first half of the couple has died. So the second half of the couple will have reduced funds to pay for a care home.
In addition, despite the guarantees that Trust companies may advertise, the Trust scheme may not work. Your local authority may deem your trust scheme to be a deliberate deprivation of assets. If they do, your property will still be counted towards your capital and affect your funding eligibility. Meanwhile, the trust will still have ownership of your property. You will have wasted time and money on what can be a lengthy and expensive process.
Jane Sutherland, partner and solicitor at Nelson’s Law, says: “Fuelled by concerns over the so-called ‘dementia-tax’, a whole industry has grown up around the sale of these schemes. Charges often start at around £4,000. All too often, the schemes may be promoted by people who are not legally qualified. People who are giving information without first considering whether it is appropriate for the client.”
The seven year rule
Be wary that it can be the case that you need to survive for 7 years after gifting your property to a trust or another person for it to no longer count as part of your taxable estate.
If you are interested in using a Trust, you should always consult a solicitor, who specialises in this area. They can advise you properly on what is a complex and sometimes risky area of law.
