Reasons why it may not be the best route to take
With the 2024 budget fast approaching, we have seen a flurry of new enquiries regarding property Trusts. There are plenty of adverts advising that these Trusts are the best thing since sliced bread and can ensure the property is dealt with without the need for a Grant of Probate, and it also protects the property from being used against care fees.
Now whilst putting the property into a Trust does mean that a Grant of Probate is not required to deal with the sale, there are a lot of reasons to keep the property in your estate and not place it into a lifetime Trust.
The most important ones are as follows:
- The most important reason is that if your property is over £325,000 you will incur an immediate tax charge of 20% when transferring it into the Trust.
- You will lose the Residential Nil Rate Band tax allowance. This allowance gives a married couple £1 million worth of tax allowances between them and, if lost, it takes a married couple back to £650,000.
- For inheritance tax purposes, the act of placing your property into the Trust is also a gift for inheritance tax purposes and if you fail to survive 7 years, it will come back into your estate for tax reasons. However, even if you survive 7 years the property could still be included in your estate for tax purposes either due to being a gift with reservation of benefit if you continue to live in it and do not pay market rent or triggers an annual pre-owned asset tax charge – either way there are tax consequences.
- The Trust does not always protect your property from being used to pay for care as the Local Authority can state that you have deliberately deprived yourself of the asset in avoidance of care fees. Whilst social services will have the burden to proving this, it would not be difficult to prove avoiding care was the reason.
- Unless the Trust is a Disabled Person Trust, if the property exceeds £325,000 on creation, it could incur an inheritance tax charge of 6% over £325,000 each and every 10 years along with exit charges.
- With all Trusts, Trustees are key. When you put your property into a Trust, you are releasing control over the property and it is your Trustees who have the control and final say. If you wanted to move, the Trustees would be the ones to action this and approve.
- Trustees have to act by way of consensus and therefore, if the Trustees do not agree, nothing can be done. Trustees are also mortal and therefore if one of them loses capacity, nothing can be done due to not all Trustees agreeing. In these circumstances, the Trustees who are able, may have to apply to the Court and make an application to remove the incapacitated Trustees. This of course would incur substantial costs but also would delay matters considerably. Had you left the property in your estate, this would not have been a problem.
How can we help?
There are more efficient ways in order to protect your estate from care fees and should you wish to discuss your Wills or estate, I would be more than happy to assist you.
For further information on more efficient ways to protect your estate, please contact Emily Butterworth, in our Wills, Trusts & Probate team on 01733 882800, or email [email protected].
Emily Butterworth, FCILEx
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