The Goodwills Home Protection Trust
Giving consideration to Putting your home into trust whilst you are alive, fit and healthy for the benefit of your children.
You have worked hard to buy your own home. 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 might be lost to them. You may give your home outright in an attempt to protect your home. But be aware there are many potential pitfalls to such a transfer, for instance:
- Divorce It is a fact of life that the divorce rate is increasing. If your children (or beneficiaries) get divorced, your home could be included in a divorce settlement. Subsequently, you home could be lost to future generations of your family.
- Death If one of your children or beneficiaries died, your home could pass to their spouse, or someone else outside of your family. This will be in accordance with their will if they have one or the rules of intestacy.
- Debt Your beneficiaries might have financial difficulties which you don't know about. Your home could be sold to pay off their creditors.
- Tax There could be a liability in Capital Gains Tax if your home increases in value after you have given it away.
- And what if: You and your family fall out, if they loose mental capacity, they go into residential care or many other reasons...
What is a Home Protection Trust?
A Home Protection Trust is a Lifetime Discretionary Trust designed primarily to hold your main residential property and some money and investments if appropriate. You can protect up to £650,000 if you own the home jointly or up to £325,000 if you own the property on your own. If your house is worth more than this, then you can put part of the property into the Home Protection Trust. This amount equates to the Nil Rate Band for Inheritance Tax, and if this rate changes, the amount you can protect changes too.
What are the main benefits of a Home Protection Trust?
The main purpose of a Home Protection Trust is to protect your main residential home from events that might remove some of it's value outside of the family. Examples of how the Trust might protect the home are listed below:
- If your surviving spouse should remarry after your death, any Will that you have made would be revoked. Consequently, When you die your assets could become the property of your new spouse and subsequently their children. The Home Protection Trust offers assurance that your property will remain within your family.
- If your beneficiaries get divorced after your death your property could form part of the divorce settlement. The Home Protection Trust ensures that the assets cannot form part of the settlement. This is because the assets are in a discretionary trust. Consequently no beneficiary has an absolute right to the assets which are owned by the trust and thus leaves them protected.
- If any of your beneficiaries die before their spouse but after your death, your property could form part of the survivor's estate. Consequently, this could then pass outside of your family. The Home Protection Trust ensures that the trust assets cannot form part of the survivors estate. This means only your nominated beneficiaries (ie children and grandchildren) can benefit.
- If any of your beneficiaries become bankrupt after your death or have to enter into an agreement with their creditors your property could be taken 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 settlement. This is because no beneficiary has an absolute right to the assets of the Trust.
- If any of your children or grandchildren were unable to effectively manage their affairs due to vulnerability (health, addiction or social reasons), then the Home Protection Trust could protect your assets. This is because the Trustees could decide not to give the vulnerable person money at a time when it could place them in harm's way.Likewise, one of your children or grandchildren might 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. This process can cost thousands of pounds. Consequently the cost of the Home Protection Trust can be recouped many times over through savings made on costs after you have died.
- The Home Protection Trust is primarily a solution for estate planning issues. However, it may also protect the capital value of your assets from being used to fund long term care home fees. But only if it was set up for other reasons (see above). It is important that it was not reasonably foreseeable that you would enter long term care.
How the Home Protection Trust works
Home Protection Trust Trustees
The Home Protection Trust is a legal transfer of your home into a Trust. This is then managed by your trustees in accordance with the trust document.
Therefore it is essential that you pick Trustees who shall act in the best interests of the beneficiaries. It also make sense to appoint yourself as a Trustee too.
Most people appoint 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 your grandchildren. You can however include anyone you choose.
Home Protection Trust Features
The Trust gives you the right to live in the property for the rest of your lives. It also gives you the right to downsize or move home at any time in the future.
You will have a life interest in the property until your death and your home will be 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. When you no longer wish to live in your property or have died, the Trustees can decide whether to sell the property and wind the Trust up, or the Trust should continue.
Home Protection Trust Benefits
One advantage of Trustees being given the right to continue the existence of the Trust is that if a beneficiary is going through a divorce, the Trust assets do not need to be transferred to them until the divorce has been completed. If this was not the case, then the assets could well form part of the divorce settlement, and be lost from the family.
Your home is effectively held by the Trustees and does not automatically belong to any of your children or grandchildren after your death. Therefore the value of your house will also not be considered if they go through bankruptcy or require recourse to state help, such as disability or employment support benefits.
Get professional legal advice based on your exact personal circumstances
This is a concise summary of the Children's protective trust, and you should seek professional advice before making a decision to create a Trust.
Goodwills Legal Services Ltd can create a Children's Protective Trust, act as a professional Trustee if you require it, and can provide information based on your specific individual circumstances. Goodwills Legal Services Ltd is a STEP member accredited firm and is regulated by law, by the CLC.
Goodwills Wilts and Glos can provide a home visit service within many parts of Wiltshire and Gloucestershire or you can visit a senior client consultant in their offices in Malmesbury. Please contact us for an initial consultation or should you have any questions.
Quickfire questions and answers:
Yes. It is important that you remain in control and involved in any decisions involving the trust. Therefore the trust ensures that your permission is required prior to any decisions being made.
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.
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. You should appoint between two and four trustees.
You can write a letter of wishes that will explain to your Trustees your intentions with regards to the property after your death. If you opt for our Storage and Maintenance Service, we will safely store this alongside the Home Protection Trust document.
Home Protection Trusts are not tax saving devices, instead they are tax neutral.
Providing that less than the nil rate band is put into the trust there will be no IHT or Stamp Duty to pay.The value of the assets in the trust need to be lower than the nil rate band (or 2 nil rate bands if property is owned jointly) otherwise the tax situation can be affected. Goodwills has special wording that protects you against this happening.
Capital Gains Tax will not be payable on any increases in value which would not be the case if your children owned the property themselves.