Putting your property in trust involves a transfer of ownership to the trust itself – as an entirely separate and distinct identity. So, why might you choose to hand over ownership of the home in which you live to a third party.
One of the most common reasons for putting your property in trust is in order to reduce your liability for Inheritance Tax. When you die, the tax is based on the value of the estate you leave to pass on to your successors. A property in trust is generally not considered to be part of your estate and, so, exempt from Inheritance Tax.
This offers a potentially valuable way of avoiding a hefty tax bill, since the current rate of Inheritance Tax is 40% on any amount above the basic allowance of £325,000, plus an additional Transferable Main Residence Allowance (TMRA) of £100,000.
Like many other forms of taxation, however, it is a complicated subject and rates and allowances change quite frequently – making the BBC’s brief table of current charges a helpful overview of your likely liability.
But a guide to the use of a trust to help you cut Inheritance Tax remains a sufficiently complex subject for you to consult an independent financial adviser before proceeding with any such transfer, warns the Money Advice Service.
Property in trust insurance
Whatever changes are made to the legal ownership of a property, it still remains vulnerable to a wide range of risks and perils potentially resulting in its loss or damage.
When it is put in trust, therefore, specialist property in trust insurance becomes necessary.
This recognises the fact that ownership has changed. As settlor of the trust, you had probably arranged standard home insurance before the transfer and are likely still to be living in the home (usually under an arrangement by which you pay the trustees some amount in rent).
Although you were once the legal owner of the property and although you probably still live at its address, however, it is the trust which becomes responsible for the insurance to safeguard it. Property in trust insurance needs to be written in the name of the trust, which assumes the insurable interest in the home.
For that same reason, important correspondence, including notifications of annual renewals, need to be addressed to the trustees – at the offices of the trust or its legal representatives. If this correspondence continues to be addressed to you, at the home, there is a risk that, if it goes unanswered, the insurance becomes invalid and vital protection for the property is lost – the trust then has to bear any losses from its own funds.
With the help of a specialist provider of property in trust insurance, comprehensive cover for the home may be retained. This typically includes the familiar cover for the building and its contents against such major risks as storm damage, subsidence, fire, flooding, impacts (from vehicles or falling objects), thefts and vandalism
A further important element of cover is the public liability insurance with indemnifies the trust and its trustees against claims of negligence from any visitor to the property, neighbour or member of the public who suffers an injury or has their own property damaged through some contact with the property.