Home Protection Trusts
Protect Your Home
You have worked hard to buy your own home and understandably you want to ensure that it will ultimately pass to your family and that it will be protected for their future benefit. Yet, worryingly, there are many different ways in which your home could be lost to them. You may give your home to your children outright in an attempt to protect your home but there are many potential pitfalls to such a transfer, for instance:
- It is a fact of life that the divorce rate is increasing and if your children (or beneficiaries) get divorced, your home could be included in a divorce settlement and lost to future generations of your family.
- If one of your children died, your home could pass to their spouse and so not to your other children or grandchildren.
- As much as you love your children and grandchildren, they or their spouse may be a spendthrift and your home, for which you’ve worked so hard, could be sold to pay off their creditors.
- There could be a liability in Capital Gains Tax if your home increases in value after you have given it away.
- There could be a difference of opinion between your children.
The Goodwills Home Protection Trust can help prevent these problems from arising, whilst helping to ensure your property is protected for your loved ones. Additionally, the Home Protection Trust allows your property to be sold after your death before a costly and time consuming Grant of Probate needs to be obtained. A consequence of setting up a Home Protection Trust is that, in certain circumstances, assets held within the Trust may be protected from the impact of long term care home fees.
Who can set up a Home Protection Trust?
Any homeowner(s) can set up a Home Protection Trust as long as they enjoy full ‘mental capacity’ at the time of signing the Trust, which means that you must have a complete understanding of the Trust and the documents you are signing. Ideally, homeowners must not have a mortgage or charge on their home – if you do, then please speak with us prior to your application.
How the Home Protection Trust works
The Home Protection Trust is a legal transfer of your home into a Trust, which is managed by your chosen Trustees in accordance with the Trust document. It is therefore essential that you pick Trustees who shall act in the best interests of the beneficiaries (you may also appoint yourselves as Trustees). Most people pick their children or close family members to be Trustees of their Home Protection Trust. The Trust lists potential beneficiaries who can benefit from the Trust and these would typically include yourselves, your children and grandchildren, and any other people who you might wish to benefit should your immediate family not survive you.
The Trust gives you the right to live in the house for the rest of your lives and also gives you the right to downsize or move home, should you wish to do so in the future. Subject to you having a life interest in the house until your death, your home is held within a ‘discretionary Trust’. A discretionary Trust has potential beneficiaries such as your children and grandchildren but they do not receive anything from the Trust unless the Trustees agree to this (though they may, of course, be Trustees themselves).
The Home Protection Trust can run for up to 125 years, so when you no longer wish to live in your property or have died, the Trustees will then make a decision as to whether the home should be sold and the Trust wound up, or that the Trust should continue. The Trustees will be guided by the Trust document as to whom, and in what shares, beneficiaries should receive the capital of the Trust.
One advantage of Trustees being given the right to continue the existence of the Trust is that if a beneficiary is going through divorce, the Trust assets do not need to be transferred to them until the divorce has been completed (otherwise, they may well form part of the divorce settlement and so be lost from the family). Your home is effectively held by the Trustees and does not automatically belong to any of your children after your death. Therefore, the value of the house will also not be considered if they go through a bankruptcy or require recourse to state help, such as disability or employment support benefits.
If you should remarry, any Will that you have made would be revoked and if you died, your assets could become the property of your new spouse and subsequently pass to their children. The Home Protection Trust offers assurance that your property will remain within your family.
If your children get divorced, your property could form part of the financial settlement. The Home Protection Trust ensures that because the assets are held in a Discretionary Trust, they cannot form part of the settlement as no beneficiary has an absolute right to the assets of the Trust (although it may be a factor taken into account).
If your children die prior to their spouse, your property could form part of the survivor’s Estate and could then pass outside your family. The Home Protection Trust ensures that because the assets are held in a Discretionary Trust, they cannot form part of the survivor’s Estate and only your nominated beneficiaries (eg. children and grandchildren) can benefit.
If your children become bankrupt, their creditors could take your property to repay the debts. The Home Protection Trust ensures that because the assets are held in a Discretionary Trust, they cannot be included in any bankruptcy settlement since no beneficiary has an absolutely right to the assets of the Trust (although it may be a factor taken into account).
If any of your children or grandchildren were unable to effectively manage their affairs due to vulnerability for health, addiction or social reasons, then the Home Protection Trust would protect your assets, as the Trustees could choose not to give the vulnerable beneficiary money at a time when it could place them in harm’s way. Likewise, if one of your children or grandchildren are or were to become disabled, the capital of the Trust would not be considered in terms of assessing whether they are eligible for state aid or benefits.
Home Protection Trusts also provide a great advantage during Probate, as no Grant of Probate is required if the house needs to be sold straight away. Usually, before a house can be sold, Probate needs to be granted, which is a part of a process that can cost thousands of pounds. If you need any assistance with Probate, either now or in the future, please contact Goodwills Legal Services Ltd or your adviser directly, as we are able to carry out Estate Administration work for highly competitive fees.
Frequently Asked Questions
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?
Yes, you are able to move home should you wish to do so. 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 normal for adult children or trusted adult family or friends to be Trustees. You are also able to appoint yourselves as Trustees, although others will of course need to be appointed alongside you. You should appoint between two and four Trustees.
How will my Trustees know what my wishes are after my death?
You can write a Letter of Wishes that will explain to your Trustees your intentions with regard to the property for after your death. If you opt for our Storage and Maintenance services, we will safely store this alongside the Home Protection Trust document.
Will there be any tax to pay?
Home Protection Trusts are not tax saving devices but they are tax neutral, and so do not lead to any extra tax needing to be paid. Provided that less than the value of the Nil Rate Band is put into the Trust, there will be no inheritance tax to pay and no Stamp Duty Land 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.
The new Residential Nil Rate Band means that the amount that can be given by a married couple to children or grandchildren free of inheritance tax has increased, in the right circumstances, to £850,000 and is due to increase incrementally up to £1,000,000 in 2021 (it is half these amounts for an individual). If you need further information regarding the tax implications of setting up a Home Protection Trust, or otherwise, please do not hesitate to contact your adviser directly.
Can I put a property other than my main residence into a Home Protection Trust?
For tax reasons, it is not generally advisable to put a home into a Home Protection Trust unless it is your primary residence. If you are considering doing this, please contact your adviser directly for further information.
Can I add other assets to the Home Protection Trust?
Yes, although the Home Protection Trust is primarily to protect your home, you can add other assets to the Trust. Please seek your adviser’s advice should you wish to do so.
Will the Home Protection Trust protect my home from long term care fees?
The primary objective of the Trust is to protect your home from future events involving your beneficiaries, and to allow your property to be sold after your death before a Grant of Probate has been obtained. Depending on your circumstances, however, a Property Trust may also protect your home from your future creditors such as your local authority. The Home Protection Trust is not a guaranteed solution for protection from long term care fees.
Who will deal with the legal work on my case?
The legal work relating to your Home Protection Trust will be carried out by Goodwills Legal Services Ltd, which is a regulated and fully insured law firm.
How much does the Home Protection Trust cost?
The price varies depending on your circumstances and value of your home – please ask your adviser directly for an exact quote. Goodwills always offers a highly competitive price for all Trust services, including Home Protection Trusts.
I want to proceed- what next?
In order to start work on drafting and establishing the Home Protection Trust, we will need to gather some further information. Your adviser will assist you in completing an application form and gathering the required information. We will also need to see ID documents from yourself and also your Trustees, as the work involves a Land Registry transfer and so verification of identity is required for compliance purposes.
Goodwills Legal Services Ltd will allocate a dedicated “case officer” to deal with your work, whose role will be to ensure the efficiency of the process, to liaise with you on any additional information they may need and to answer any further questions you may have.
Information about Long Term Care Home fees
One person in four will spend time in long term care – a ratio that is likely to increase as the population continues to age in the future. Since the introduction of the Community Care Act 1990, thousands of Estates have been wrecked through having to pay the cost of care fees. Over 500,000 people are currently resident in nursing and residential care homes and less than half of these are cared for by the local authorities. It is currently estimated that around 70,000 homes are sold each year to fund these care costs. The cost of care often exceeds £1,000 per week and, in some areas of the country, costs can reach as much as £2,000 per week. Your children will see their inheritance disappearing week by week and they may inherit as little as £13,000.
Currently, anyone with over £23,250 of assets has to pay the full costs of their care home fees, and over one in ten ends up spending over £100,000. Even those with assets valued at between approximately £13,000 and £23,250 still need to make a 100% income contribution and a partial contribution from their capital. Even those with under £13,000 of assets must still contribute all of their income towards their care home fees, which includes income from all sources, including pension, state benefits and any other income.
The Home Protection Trust is primarily a solution for Estate Planning issues but may also protect the capital value of your assets from being used to fund long term care home fees, provided that it was set up for other reasons, and it was not reasonably foreseeable that you would enter long term care.