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Property Trust - Any experience/advice.

themilkman23

Well-known Member
Recently my mum signed up for a Living Social deal which enabled her to have a visit to help put a will together.

Obviously when the 'Planner' arrived it wasn't just to arrange the will it was to upsell other products such as Lasting Power of Attorney and Trusts.

The one Trust my mum was interested in was the possibility of placing her property in a Trust as she wanted it to be protected from inheritance tax etc so that it could be left to her granddaughter (my daughter).

Everything went fine with the company to a point where certain extra fees were in our opinion deliberately withheld in order to get the sale but this is a separate complaint we have raised with them but because of this it has started to question every step they have suggested for her.

I've read all of the paperwork and seems to be pretty straightforward and have also looked online and again looks to be a legit thing to do.

I'm just wondering if it is such a good thing to do why are not more people doing it to protect their estate etc? So was just wondering if there is anyone on here that have put their property into a trust or if their parents had done it and if there were any problems further down the line?
 

RBZ5416

Distinguished Member
I looked into this a while back as a means of getting my property to my granddaughter, bypassing her mother. It just made my head hurt.

Is this just to protect against Inheritance Tax or something else as well? Is it intended to go into trust now or upon her death?

I presume from your post that your mother is a widow. If that's the case then I would first look into transferring her late husbands IT allowance to the estate, which could potentially double the threshold.

HM Revenue & Customs: Transferring an unused Inheritance Tax threshold

If the plan is to create the trust while she is living then I believe that if she should die within seven years of it's creation, IT would still be payable.

Maybe have a read of Which? as well.

Will trusts and lifetime trusts - Writing a will - Retirement - Which? Money
 

cunny678

Distinguished Member
Generally if you put something in trust you cannot still retain a benefit to it. As your mum will still be living in the property she will have a benefit! Is the personal giving the advice a will writing business?
 

themilkman23

Well-known Member
Inheritance tax is one thing by but my mum even though only in her late 50's and healthy it still makes her angry when she read's stories of people going into care and the council taking her house from her.

She has remarried but the wills state that her property and estate will all go to her side of the family and my step dad's estate will all go to his side of the family.

Thanks to the Which link from Crocodile this paragraph explains what she is taking out:
'Lifetime Trusts
Lifetime trusts are often known as property protection trusts or asset protection trusts.

Unlike will trusts, which come into being on death, lifetime trusts are established straight away. Your home is gifted to the trust, which allows you to carry on living in it. The rationale is that if you need residential care at some point in the future, you no longer own a house and can only be assessed on minimal assets.

Anyone considering setting up a lifetime trust for this reason should be aware that a local authority may regard this arrangement as 'deliberate deprivation of assets'. If this is the case, they can assess you as if you still owned the property (and refuse to fund your care).

By placing property outside your estate, lifetime trusts can reduce probate costs significantly.'
 

cunny678

Distinguished Member
Interesting! Do they mention that by gifting the property into trust that her exemption for CGT on her own property ceases and that trust can be taxed at up to 45% on gains or income realised by the trust? IMO it will almost always be deprivation unless there is a specific reason for the gift. Additionally, if the value of the property is over £325,000 when it is gifted into trust there will be an immediate tax charge... if I recall correctly! You didn't say if the person advising her was a will writing business?
 
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themilkman23

Well-known Member
The person who came to the house originally were 'Estate Planners' I believe, but Will Writing is their primary business and their up sell the rest once in the door.

The Trust documents are then prepared by a solicitor and these guys are the middle men for that part.

The house will be gifted into the Trust now and is not worth £325k so that shouldn't be a problem.
 

RBZ5416

Distinguished Member
Obviously I don't know all the details but from what you've posted so far, I can't see any merit in it. Out of interest, who will be the trustees & what are the costs associated with that? I seem to recall that an annual report has to be made which is another cost, although that may only apply to Will Trusts.
 

themilkman23

Well-known Member
I agree, the only merit would be possibly protecting her and the property if she needed to go into full time care.

The trusties would be my mum and I at the moment and upon her passing I would need to look into possibly adding my daughter on then - what we didn't want to do was for the house to become my daughters at 18 for instance as even though she is only 11 months old at the moment we don't know if when she hits 18 she would be in the right place to say 'Here is a house'. I know if I was given a house when I was 18 it would have been party time!

But this has been going on since last August I think with the complaint going on since November. My step dad's health is not the best and things play on his mind, stress get's to him and then it makes him ill and my mum then has to look after him.

So whereas I would probably fight it to say that it was missold, my mum just wants to draw a line under it and move on as long as she is not disadvantaging herself by putting the property into the Trust.
 

cunny678

Distinguished Member
Call me cynical, but I very much doubt that the trust would be drawn up by a solicitor and if it were you would be better off going direct to that solicitor and being covered by the protection that the solicitors regulation authority provides.

AFAIK will writers are not regulated to an extent that if the advice they give is wrong you can be compensated.

As Crocodile implied, trustees have a responsibility to ensure the property is managed so that both the life interest and the eventual beneficiaries interests are taken into account. Technically they should charge rent on the property!!!!!
 

themilkman23

Well-known Member
You are right, Will Writers are not regulated even though they are giving advice and selling services that impact peoples finances.

The charge for the trust to be set up is lower than a solicitor would have charged (I've checked locally) and due to the complaint I pursued she is getting a chunk of what she paid refunded to her.

There are HMRC docs (HM Revenue & Customs: Notifying HMRC about a new trust that came with the Trust stating HMRC need to be told if there is to receive an income so it looks like if my mum died and we started renting the property out we would need to inform them, but because my mum will just be living in it that is allowed.

And for whatever reason because it's being transferred into a Lifetime Trust and she is the person transferring into it and she is a trustee she can still live in the property and not have to pay rent.
 

cunny678

Distinguished Member
My point relating to rent was not in connection with tax, but a trustees duties to protect all parties interest. Although I doubt putting a property in trust for IHT would be a good choice, my understanding is that rent would have to be charged in that instance. There would still be a liability to CGT on disposal of the house within the trust which would be notified to the revenue on sale.

Good luck with getting it all sorted.
 

RBZ5416

Distinguished Member
Some interesting reading here with a hypothetical case study. This scenario includes legal fees should a local authority challenge the validity of the reasons for setting up the trust. Although I'm not convinced that a cash-strapped LA would really roll over quite so easily in this day & age.

It also states that the trust must be drawn up by a solicitor.

Must say I'm amazed that the owner of an asset can also be a trustee. May have to revisit this myself as the scenario you outline of an 18-year-old "winning the lottery" was one of my concerns.
 

cunny678

Distinguished Member
Must say I'm amazed that the owner of an asset can also be a trustee. May have to revisit this myself as the scenario you outline of an 18-year-old "winning the lottery" was one of my concerns.

It all depends what you are trying to do! The owner of the asset is generally no longer the owner when it goes into trust as the trust then owns it. The ex owner being a trustee may or may not be an issue depending on whether they have the right to the trust assets!
 

booyaka

Moderator
I will give you a quick run down of the Asset Protection Trust (APT) that I have worked with in the past, hopefully might answer some of the concerns.

I use a local solicitors/lawyers to write the actual trust, if deemed appropriate for the individuals concerned.

It's usually setup as follows: Say in the example of a 2 parents with estate of £400k (made up of £325k house and £75k cash- keep it simple!)

Usually a single APT can take up to £325k (nil rate band), more than this usually requires 2 trusts agreements.

APT is set up with the property being placed inside the trust, there is usually the following stipulations made, 2 of the lawyers/solicitors are appointed as "technical trustees", the spouses are the trustees, and usually 1 of the children (mid 30/40's say) as the other trustee, who can also be a beneficiary. The trustees place the assets in the trust (house) for the beneficiaries (children/whoever)

You can, if you wish, appoint yourself as one of the Trustees for example but you cannot be a sole Trustee of your Asset Protection Trust. You need to appoint at least two other Trustees (hence the solicitors/lawyers as technical trustees)

Trustees must be reliable and trustworthy. You would be advised not to appoint someone who has been bankrupt or involved in crimes relating to financial matters.

The trust can protect from a number of avenues, IHT planning, Long term care fees, divorce/family disinvestment, bankruptcy etc etc.

Long term care is one of the main reasons for this - if the trust is set up whilst the parents are in good health and you have no reason to expect you would need to go into a care home in the future, then it is extremely difficult for the local authority to prove this. (see deliberate deprivation).

There is no issues around still continuing to live in the property/pay a rent etc, basically it is a paper exercise ultimately.

The one we use has No ongoing fees at all, it has an initial setup fee based on the trust, and potentially updating/changing of the wills to reflect this but zero ongoing fees. Also any, and all, challenges that might occur from the local authority around future care home fees etc, are all taken care of by the technical trustees of the trust without any future costs. I've not had any trusts for my clients challenged by the local authority as yet, as they generally realised that if setup correctly, they have very little chance of a legal challenge succeeding.

However, they should not be entered into without detailed, very specific advice from suitably qualified professionals who are properly regulated and have the long term interests of their clients at heart. Please note that anything above I have mentioned or detailed is my understanding of the current legislation and does NOT constitute advice or recommendations in any form. (also there are slight differences between English and Scottish law)
 

booyaka

Moderator
The last link I posted suggested a setup fee of circa £3k. Is that about right in your experience?

yeah - there or thereabouts. £2.5k or so with no ongoing costs is in the ballpark for our connections dependent on whereabouts the client is based and what other work we are doing for the client outside of that.

Just to make it clear, i'm an IFA and I refer individuals who are interested to local solicitor connections in the area (that I know and trust) and work with the clients to ensure it's the correct advice for my clients at the end of the day.
 

cunny678

Distinguished Member
AFAIK and I have spoken to a few IHT specialists, it is the general view that you cannot put your home into a trust and still live there without paying a market rent and not pay IHT! Also, the trust will only have half the personal CGT exemption and gains could be taxed at 28%!!

I remember a firm of Solicitors in the midlands that introduced a scheme about 15 years ago where their clients property was put into trust to save IHT. It was a completely different arrangement than that detailed above, but the tax man in effect nullified it by introducing a new tax - POAT!!

At least you have put your clients in touch with a Solicitor booyaka, so if they get it wrong at least your clients will have some protection from the Law Society.
 

booyaka

Moderator
AFAIK and I have spoken to a few IHT specialists, it is the general view that you cannot put your home into a trust and still live there without paying a market rent and not pay IHT! Also, the trust will only have half the personal CGT exemption and gains could be taxed at 28%!!

Trust me I would not be passing any clients on to anyone where I was not completely satisfied about the nature of any financial/trust based arrangement.

What your talking about is a totally different trust all together. Your thinking about the old Qualifying Interest in Possession Trusts (QIIP) where a beneficiary is entitled to the income as well as the underlying asset (property) on death.

POAT is a whole other seperate issue as well - it does not apply to Asset Protection Trusts.

Whereas under a ‘Mainstream’ Trust no one is entitled to the income or assets, rather it is at the discretion of the trustees as to how both are distributed dependent upon the terms of the trust Deed.

Under the Asset Protection Trust - It works to sever the legal connection between the grantor (creator of the trust), and the actual asset. It's basically a Discretionary Trust which is different from the old QIIP trust.

It's not all about Long term care fees etc - bear in mind I had one recently where the Asset Protection Trust paid out the value of around £200k inside 14 days to the beneficaries as it's not be subjected to the usual
process of Probate. Instead, they can be distributed to your beneficiaries immediately after your death.

Saying that you can leave the asset in the trust should you wish.

Also when setting up any trust arrangement - HM Revenue and Customs (HMRC) should be notified that the Trust is in existence.

Again - this is my understanding of the rules and regulations
 

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