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Trusts are a well-established way of placing an asset – such as your home – into the hands of independent Trustees who have a duty of care in managing the Trust on behalf of nominated beneficiaries.
According to a broad definition cited by Practical Law, Trustees have a fiduciary duty of confidentiality, a duty not to profit from their position, and a duty to bear no conflict of interest – Trustees, in other words are independent, honest and trustworthy.
There are three principal parties involved:
Many homeowners who are giving thought to the inheritance they wish to pass on to their children consider placing their home in Trust, for the benefit of their loved ones.
By transferring the ownership of the property to a distinct and independent legal entity, the Trust, you may be able to manage paying care home fees later in life – your ability to pay such fees is calculated with reference to any assets you own, including your own home.
Placing the home in Trust may avoid the need to sell your home to pay for long-term care, therefore, and allow your children what you consider to be the inheritance you have worked hard to pass on.
Although ownership of the property formally transfers to the Trustees, the latter may agree to your continuing to occupy the property for the remainder of your life or until you move into long-term care and you pay to the Trustees a nominal rent – as the effective tenant of the property.
The change in ownership and your new status as a tenant has serious and important implications for the continued protection given by insurance of the property.
Home insurance on properties in Trust is a sufficiently important subject, in fact, that here at UKinsuranceNET, we have made it one of our niche specialities.
You the settlor, Trustees and the Trust’s beneficiaries all share an interest in the property being adequately insured, of course, but the change in ownership to a new legal entity means that it is the Trust – and no longer you – who has an insurable interest in the home.
Unless the necessary protection – in terms of building insurance, possible contents insurance, and public liability insurance – is properly arranged in the name of the clearly identified Trustees, therefore, lapses and the cost of any loss, damage or claims against the property owner have to be met from the funds held by the Trust.
Yes, indeed. To ensure that the home insurance is renewed on time and does not risk lapsing and to ensure that all relevant correspondence about insurance cover is correctly addressed to the new owners, the insurers must be informed of these facts and the home insurance policy re-issued accordingly.
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