Family Trusts 

There are numerous reasons why a person might legitimately want to transfer his/her property to a family member or into a Family Trust.  If you are considering this you may find the following of interest.

Points to consider in relation to a transfer of property to family members  

• The person transferring the property will have a lack of security unless there is a deed of trust setting out rights of residence and rights to use the proceeds of sale to acquire another property etc.

• It must be understood that if a person is no longer the owner of the property he/she would no longer have full control over the proceeds of sale. 

• It is essential that the beneficiaries of the gift execute a Will to make provision if they die before the donor. 

• If following completion the people to whom the property has been transferred get into financial difficulty the property would be their asset and could be attacked by creditors and also taken into account in a bankruptcy.

• If any of the of the people to whom the property is transferred are involved in matrimonial difficulties the share in the property would be an asset taken into account in any divorce settlement.

• The transfer of the property does not reduce the value of the estate for Inheritance Tax purposes while the donor continues to reside at the property because of the reservation of benefit rules.

• The private residence exemption does not extend to the persons to whom the property is being transferred unless they are living in the property.  This generally means that there would be a Capital Gains Tax implication in relation to any future sale. 

REASONS FOR TRANSFERRING THE PROPERTY INTO A FAMILY TRUST

Transferring your property into a family trust gives more security.  Setting up a Family Trust involves transferring the family home into a lifetime discretionary settlement.  The trust is usually structured so as to provide the person(s) transferring the property a right of occupation.

The trustees of the Family Trust in most cases are the person(s) transferring the property and two members of the family.  The family members who are to ultimately benefit from the sale proceeds of the property are named in the Trust Deed as beneficiaries.   By transferring the property into a Family Trust it means that the property no longer belongs to the original owners for the purposes of any financial assessments under current legislation. 

It is important that a person(s) transferring the property should understand that if the property is in trust, the trustees would be in control of the trust property.  The person(s) transferring the property would have a right of residence.  If one or more of the trustees/beneficiaries died, got into financial difficulties or divorced, this would not affect the running of the trust as usually these people do not have an absolute interest in the property until funds are distributed (in other words, usually, when the property is sold).

POINTS TO NOTE

It is important that it is understood that disposal of a property whether by way of transfer to family members or by way of transfer into a Family Trust does not avoid Inheritance Tax.

If a person(s) is intending to transfer a property purely to deprive them of assets in order to avoid paying any type of fees, for example nursing home fees then the transfer may not be effective.  The burden of proof in the context of why a property is being transferred rests with the Donor during the first six months and thereafter lies with the Local Authority but there is no time limit.  It is a popular misconception that there is a limit of five or seven years after which time no questions would be raised.

There are, of course, a number of reasons why a person might legitimately transfer his property:-

• Natural love and affection for children and a wish to preserve a property for the ultimate benefit of children and issue.

• Concern about the responsibility and cost of repairs and improvements in the future.

• Emotionally attached to the property e.g. self build can ensure is retained for the future.

• Property has been the family home for a number of years and your wish to retain it in the family so it might be available for future occupation of family member.

• Transfer in life simplifies procedures and may save the expense of obtaining a Grant of Representation on death.

We have prepared this as a "thought provoker" and it does not purport to provide legal advice.  If you would like to discuss the points raised in this note in the context of your actual circumstances, please contact Clair Dunkerley on 01429 235616 email cdunkerley@tmjlegal.co.uk