Home Protection Trust
Information Pack
HOME PROTECTION TRUST INFORMATION PACK
The Family Protection Trust is a legally binding Ring Fence that protects your family home from outside sources.
Probate Fees
If a Solicitor or Bank has written your Last Will and Testament, they have most likely included themselves as the executor of your estate, and in some cases informed you that your children cannot be an executor, which is not true. These professional executors charge anything from 3% – 10% on the gross estate value to deal with your probate on behalf of your beneficiaries. This can run into five figures. For example, 5% on a £200,000 house is £10,000. This is not to mention the remainder of your estate, but your home is normally your biggest asset. By placing the family home into a Trust, it will negate the need to go through probate, meaning that should your children wish to sell the home after inheriting it, they can do so, without having to wait for Professional executors to deal with your whole estate.
This in itself will save thousands of pounds for your beneficiaries, but there is one more thing to consider. If your only asset is your home, how would your beneficiaries pay the legal fees that would be incurred through probate without a Trust?
Some people have had to take out loans to cover legal expenses during probate, just so that they can inherit according to the wishes you left behind.
Bloodline Protection
This is the most potent of reasons for creating a Trust.
Should your son or daughter end up in divorce after inheriting your estate or part of it, the outgoing spouse will be entitled to half of the said inheritance in the terms of the divorce.
By placing the home into a Family Trust, the only beneficiaries will be those named in the Trust Deed, and not greedy third parties.
The same can be said for the original homeowner, YOU!
Should you or your spouse pass away and the other remarry, the new spouse will have no access to the marital home should they outlive the original partner, and the original bloodlines inheritance will be preserved. Without placing it into Trust, any new spouse could potentially inherit your estate, bypassing your children and grandchildren entirely.
From Creditors
Should a trustee or beneficiary of the Family home fall into financial difficulty through a failed business or loss of a job for example, or by entering bankruptcy proceedings, any property locked in a Trust cannot be pursued by creditors.
Wayward Beneficiaries
Should a beneficiary have problems with gambling, drugs or alcohol, the inherited home is protected from being squandered when locked in Trust, and can pass to grandchildren when they come to a predetermined age if stated. Other Trustees can elect to provide an income from the Trust Fund if they so wish in this case, or they can wait till the wayward beneficiary can take control of the issues in question.
This can be a benefit in many more ways than just the above examples however. If you have a young child under 18, or a disabled child, who cannot be a Trustee, the other Trustees can look after their interests on their behalf until they reach a predetermined age that you can choose.
Transferable
You will still enjoy full control of the home while it is in Trust. The home can be sold to downsize and the new home placed into the same trust (involves a small admin fee) or the beneficiaries can sell it and place their own home into the trust to assist with their levels of protection.
You can also replace existing Trustees with new ones should something happen to one of them, or should you have a falling out with one.
Intestacy
Should you pass away without a Will, or should your Will be invalid, by placing your home in trust, your home cannot be used in the Rules of intestacy where your entire family might claim a portion of your estate. (BROTHERS, SISTERS, AUNTS, UNCLES, ETC.)
IHT Planning
While the Family Trust cannot be used to avoid Inheritance Tax, it can be used to assist in IHT planning on behalf of your estate.
Full faculties
Perhaps the biggest selling point of the trust. Should one or both of the homeowners eventually lose their faculties in terms of dementia, or Alzheimer’s Disease, the existing trustees can make any and all decisions relating to the sale or running of the home.
Without a trust in place, the children would need to apply to the Court of Protection for an order to give them control on behalf of their parent(s), at an average cost of £5,000 AND A LENGTHY PROCESS.
THE TRUST
Settlors
The settlors are the owners of the home. They are the ones who settle the home into the trust. They have full control of the trust and can nominate Trustees at any time. They can remove a trustee, and replace them, or they can unravel the trust and revert back to joint tenants of the property. A trust can set up if there is a single owner. (A widower or divorcee for example)
Trustees
The trustees are the babysitters of the trust. They have no actual control of the trust until the settlors die, but they have to be involved in decisions relating to the sale of the home within the trust. They cannot take any legal action on the home without the settlors consent.
THERE CAN ONLY BE FOUR TRUSTEES ON A TRUST (INCLUDING SETTLORS).
Beneficiaries
The beneficiaries are the persons who inherit the trust after the settlors have passed away. In most cases, this is the children and the grandchildren. There is no limit to how many beneficiaries are named.
Trust Deed
The Trust Deed is a 15 page document which is effectively the ‘Rule Book’ on how the Trust is administered. There is a lot of legal jargon inside, but it gives instructions on the duties of the trustees, how trustees are appointed, when the beneficiaries can inherit from the trust, and how long the trust is valid for (Normally either 99 or 125 years).
First Registration Should the house be unregistered with Land Registry, it must be registered as a ‘First Registration’. To do this, our legal department will require the property Deeds to send to Land Registry with the applications. The deeds will be hand delivered back to the client. The current fee for first registrations is £190. (correct at time of printing)
Why haven’t I heard of this Trust before?
Schemes such as this are not widely publicised and not many law firms specialise in such trusts. The Family Trust is best explained face to face with our clients rather than trying to explain the benefits in an advertisement.
Is it worth it?
The Trust will ease your estate administration and protect your house for your family – obviously it’s worth it.
Am I still in control?
Yes, it is important that you remain in control and are involved in any decisions involving the Trust. Therefore the Trust ensures that your permission is necessary prior to any decision being made.
Can we move home?
Of course. Should you wish to move home, in conjunction with your trustees, your home can be sold and a new one purchased in the name of the Trust.
Who will be the trustees?
Trustees should be people you trust; it is usual for adult children or trusted family or friends to be trustees. You should appoint between two and four trustees. There is no need to have solicitors or other professionals as trustees.
How will my trustees know what my wishes are after my death?
We can draft a ‘Letter of Wishes’ for you that will explain to your trustees how they should deal with the Trust after your death.
Will the Family Trust protect the home from Inheritance Tax when I die?
NO, as the settlor and beneficiary of the Trust the home will still form part of your taxable estate upon your death. We can refer you to an Independent Financial Advisor to discuss this if you are over the IHT threshold of £325,000. (£650,000 for a couple)
Will there be any taxes to pay when I set the trust up?
No, providing the value of your home placed in the Trust (or your share of your home) is below £325,000 there will be no Inheritance Tax to pay and there is no Stamp Duty Land Tax to pay. The Trust will not initially generate income so there will be no income tax to pay. Capital Gains Tax will not be payable on any increase in value which would not be the case if your children owned the property themselves.
What if I have other assets I wish to protect?
Some firms advise that other assets such as bonds, savings and investments should also be placed in the Trust. We do not advise this, as it is likely to be problematic in the future and give rise to taxation.
I’ve already transferred my home to my children.
We seem to be hearing this more and more, but signing over your property to someone else is riddled with issues. For example:
Capital Gains Tax
CGT is the biggest issue in this scenario. Capital Gains Tax is due on any gain that you make on property or investments. The basic rate of CGT is 18%, but depending on your gross income, it can go up to 28%.
eg. Mr Jones transfers his home to his only son in 2007. It is valued at £220,000. In 2013, Mr Jones dies, and his home is now valued at £295,000. His son has made a gain of £75,000. His personal tax allowance is £10,900, so he has a Capital Gains Tax Bill of 18% on £64,100. Some £11,538.
Divorce
Mr Jones has transferred his home to his son in 2007. Mr Jones Junior then divorces his wife in 2009. She is now entitled to half of his father’s house which has been signed over to him, making it his asset. Mr. Jones has no choice but to move out of the home, in order for his son to sell it, and give his ex-wife half of its value.
Creditors
Mr Jones junior falls into financial difficulty with his roofing business. Before long, creditors begin bankruptcy proceedings. Mr. Jones senior loses his home to his son’s creditors, because he signed it over to his son.
Estrangement
Mr Jones transfers the title of his home to his son. His son then falls out with his father, and Mr Jones Senior loses control of his home and can even end up on the street.
This is an extreme example, but we actually hear this a lot. People will say that that won’t happen to them, but no-one knows what the future holds. More and more people fall out with their children, because they don’t agree with decisions that they make, or the people they are involved with, or even don’t agree with their religious beliefs. Over 35% of our clients have fallen out with a child or children in the past, and have excluded them from their Wills.
Who can set up a Family Protection Trust?
Any homeowner, single or a couple, can set up a Home Protection Trust as long as they enjoy full mental capacity.
Ideally homeowners should not have a mortgage or charge on their home, but we can still offer a trust on a mortgaged home as long as there is equity in the property. IT WILL NOT HOWEVER, PROTECT AGAINST DEFAULTED MORTGAGES ON THE PROPERTY.