Ask a Law Question, Get an Answer ASAP!
Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.
Have you been approached by someone "selling you" a family trust or is this something you ave read about and are considering please?
It is something i have read about and am considering
"Family trusts" cover many different types of trusts and are not really a recognised legal type of trust at all but rather it is a name more commonly used to market various different types of trusts to the public. Trust can have postive effects but should be used carefully and only after receiving written advice ideally from a qualified solicitor and/or financial adviso. Be wary of using an unregulated company to set up a trust for you. May I ask if you own your property on your own or with a partner (spouse) please?
Own property on own, no mortgage, would like to protect for my children incase i have to go into care in the future but still kkep some control , I dont believe a direct deed transfer would be the correct route.
Thanks. Finally is your estate likely to be taxable for inheritance tax? You have an exemption of £325K as things stand before tax is due though if you have been predeceased by a spouse who has left everything to you it is possible that you may have doubt the allowance of £650K (please let me know if this is relevant and you would like me to explain this further).
No inheritance tax, spouse died some years ago and estate worth less than £325k
Thank you. The first thing to say (and this is not to be negative about trusts as they have many potential benefits but to ensure you are clear that there are also negatives you must consider) are there are some significant downsides to gifting your property into a trust. Firstly from an inheritance tax point of view, though not relevant here from what you say the transfer could be caught by the gift with reservation rule if it is still lived in by you and so although the property would be no longer in your estate, it may still be counted from inheritance tax point of view as being notionally within it unless you pay rent to the trust. In addition, depending upon the type of trust used, your property may be liable to capital gains for the period it is in trust to the date it is sold as the property could lose its principal private residence relief.
In addition, if you had to enter into care in the future, the transfer into trust could be potentially reversed by the local authority if they can show that a principle motivation for putting the property into trust was to avoid care fees. Companies that heavily advertise trusts to avoid care fees make the local authorities job easy in showing this if they can locate such advertising so you shouldb be careful in choosing a company thaopenly advertises that their trust can avoid care fees as such advertsing on its own can shoot themselves in the foot. Hence importance of ideally using a qualified person to prepare a trust.
Finally in the event you did have to enter into care you need to consider that you may want some choice as to care home and may want to top up fees or pay to live in a home of your choice above the standard provided by the local authority. Transferring your whole property into a trust potentially disadvantages you unduly in this respect as you may not have access to the capital you transfer to pay such top up fees with.
FInally there can be not insignificant fees in setting up and then running the trust. It is important to understand what such fees may be charged by the practioner you choose before you instruct them and obtain this in writing. If using a solicitor he is required to give you this information by law.
So much for the negatives. Now on to the positives...
On the other side of the equation, trusts used carefully which are prepared and tailored to your circumstances by qualified professionals can be effective and can preserve many of the tax advantages of your property as it is now (i.e. exemption from capital gains tax) and have the added benefit of sheltering assets from care fee claims and even allowing some degree of further access to you to the funds you choose to transfer into trust.
Based on what you say you may wish to consider creating something called a life interest trust for part of the equity in your home. You can put a percentae ot the whole property into such a trust which trust provides that you may continue to live in the property for as long as you wish, and if you want, that the proeprty can be sold and a new property purchased that better suits your needs in the future, but that after your death, the property passes to individuals you specify - for example your children.
the benefit of such a trust is that you have to go into care, providing it has been prepared properly, and providing you know circumstances where you are likely to have to enter into care at the time you transfer your property into trust, the local authority will not be able to make a claim against that portion of the property you placed in trust. In addition, if the trust is prepared so is that it depends upon your death, then the property will still benefit from your capital gains tax exemption meaning that your beneficiaries will not owe any capital gains tax on any gain in the value of your property
you may decide to place your entire property into trust but equally, you may decide just to place a percentage of the value of your property into trust. Placing just a percentage of the property into trust rather than the whole of it can have its advantages because firstly you are not tying up all your property into a trust - remember you can use the property but he would not be able to sell the property and spend the money if you placed in trust which is a restriction - but also because the councl have to valuing ensure you do not place into trust as a fraction of its market value because of the rules it is bound by called "CRAG rules". This can give you to some extent the best of both worlds and the percentage you decide to place into trust can be discussed in more detail with a solicitor or professional financial adviser.
Accordingly a life interest trust can give you some signficicant advantages if you are concerned about care fees in particular but great care must be taken that it is set up professionally by a properly qualified person and that you are fully advised on the above negatives so you can ensure that the positives outweigh the negaitves in your circumstances.
Does the above answer all your questions or is there anything I can clarify or help you with any further?
` Thank you thats very helpfull, I will be discussing it properly with my lawyer but wanted some idea of what is involved ,I think that is all i need to know for now.
A pleasure. If I can assist any further as the situation develops please do not hesitate to revert to me
If you have no further questions for now I should be very grateful if you would kindly take a moment to rate my service to you today. Your feedback is important to me. If there is anything else I can help with please reply back to me though