Putting your house in a trust: the honest guide

Putting your home in a trust is one of the most heavily marketed services in estate planning. Newspaper advertorials, doorstep sales, free seminars and 'asset protection' workshops have all built an industry around it. For some families a property trust genuinely helps. For many others, it adds cost and risk without any real benefit, and a recent collapse in the sector has shown what can go wrong when it is mis-sold.

This is the honest version. When putting your home in trust may make sense, when it almost certainly does not, and how to tell whether what you are being offered is the real thing or a sales pitch.

A cautionary tale: the Philips Trust Corporation collapse

Over the decade or so before 2022, thousands of UK families were sold what were marketed as 'asset protection' or 'family protection' property trusts, typically through a network of will writers and estate planning firms. Fees commonly ran to around £3,000 to £4,000 per family. Many of those trusts ended up administered by Philips Trust Corporation, which entered administration in 2022.

Families found that the homes they had transferred into trust were no longer theirs to control in the way they had been told. Some were asked to sign new agreements or pay further fees to recover access. Regulators including the Solicitors Regulation Authority publicly warned about how the trusts had been sold. Many of the original selling firms had no statutory regulator, no compensation scheme, and have since dissolved.

Not every property trust is mis-sold, and some are genuinely valuable. But the Philips story is a useful reminder that 'we will put your house in a trust' is a sales line as well as a planning tool. A trust is only worth setting up if there is a real problem it solves for your family, and only with advisers who will still be there if something goes wrong.

When a property trust genuinely helps

There are a few situations in which putting a home into trust, usually a life interest or discretionary trust set out in your will, can be the right answer.

• Second marriages, where you want a surviving spouse to live in the home for life but ultimately pass the underlying capital to children from an earlier relationship
• A vulnerable beneficiary who could not manage the home outright (disability, mental health, addiction)
• Concern that a child's marriage or finances might put their inheritance at risk in a future divorce or creditor claim
• Long-term family wealth planning where the home is part of a wider plan for assets to pass through generations on controlled terms

In each of these cases the trust is doing a real job: controlling who can live in the home, who eventually receives it, and on what terms. It is not being used as a magic shield against tax or care costs.

What a property trust does not do

It does not automatically avoid care fees

This is the most common mis-sold benefit. Local authorities assessing eligibility for care funding can look back at any transfer of assets and ask whether it was made with the purpose, or one of the purposes, of avoiding care fees. This is the 'deliberate deprivation of assets' rule.

If the council decides the transfer was a deliberate deprivation, it can treat the asset as if it were still yours. There is no fixed time limit on this look-back. A property trust set up in someone's late seventies or early eighties, with a clear inference that care was on the horizon, is the textbook case the rule was designed for.

Trusts set up well in advance, for clear non-care-fee reasons, may be more difficult for the local authority to challenge. But no one can promise, in advance, that a trust will protect against care fees. Anyone who says otherwise is selling, not advising.

It does not automatically avoid inheritance tax

Transferring your home into a trust during your lifetime does not, by itself, take it out of your estate for inheritance tax. If you keep living there without paying a market rent, HMRC treats it as a 'gift with reservation of benefit' and the home stays inside your estate.

There are specific arrangements that can work for IHT purposes, but they typically involve giving up access to the asset, paying capital gains tax up front, or transferring shares of value within strict rules. These are the exception, not the headline benefit being sold on a doorstep.

How to spot a mis-sold trust

• Cold approach: a leaflet, a 'free seminar' or a doorstep visit you did not ask for
• Care-fee scare tactics: heavy emphasis on protecting your home from being 'taken' for care costs
• Vague benefits: the seller cannot show you, in writing, exactly which tax or risk the trust addresses for your situation
• Upfront fee for a 'trust pack' with little discussion of your actual circumstances
• The adviser is not a solicitor, chartered accountant or member of STEP, and the firm is not regulated by the SRA, ICAEW or FCA
• Pressure to decide quickly or sign on the day of the meeting

What to do if you already have one

If you have already transferred your home into a trust and you are unsure whether it does what you were told it would, the first step is to find the trust deed and any associated correspondence. From there, a regulated solicitor (ideally a STEP member) can review the documents and tell you what the trust actually does, who the trustees are, and what your options are.

In some cases the trust will be sound and useful. In others it may be possible to unwind or restructure it. The right answer depends on the facts of the trust and your circumstances.

A clearer test before setting one up

Before agreeing to put a home into trust, three questions are worth asking:

• What specific problem in my family does this trust solve, and is there a simpler way to solve it?
• Who are the trustees, and what happens if they or the firm administering the trust disappear?
• Is the adviser regulated by a body that has a complaints process and a compensation scheme if something goes wrong?

If any of these questions does not have a clear answer, the trust is probably not ready to be set up.

Simply Estate is an estate planning firm. Our trust team will give you a straight view of whether putting your home into a trust is right for you, and tell you so plainly when it is not. Visit our trusts page to book your free, no-obligation review.