When you place a property (money or any other assets) in trust, you transfer its ownership to an entirely separate and independent entity.
Through the transfer, you have created a distance or gap between yourself and the property concerned, so that the latter is effectively protected and discounted from any assessment of the value of your estate. Therefore, trusts may commonly be used in order to avoid liability for inheritance tax when you die.
Because ownership has changed one of the main implications is that responsibility for safeguarding the property against the risks it continues to face also changes. The new type of cover needed to protect the building and its contents (against such potentially devastating accidents as fire, flooding, storm damage, escape of water, impacts, theft and vandalism) is a specialist product called property in trust insurance.
Putting your property in trust
The law defines many different types of trust, and each one comes with a specific set of rules and conditions, but each involves the creation of the trust itself, and its management by a trustee or trustees, on behalf of a beneficiary or beneficiaries, for whose benefit the trust was set up.
Examples of the various types of trust are identified and described on the website of Inheritance Solutions.
Setting up a trust and transferring ownership of a property to a separate legal entity may help you avoid inheritance tax. But, as the Telegraph newspaper pointed out to a reader on the 23rd of March 2017, it may also be a way of removing the asset from a local authority’s assessment of your contribution towards long-term care in your old age.
After the transfer of ownership of your home to a trust, you may continue to live there and pay the trust whatever amount in rent it decides to charge.
Property in trust insurance
The trustees appointed to manage the trust have a legal duty to safeguard any of the assets owned by the trust. In the case of property, it is the trustees’ duty to arrange property in trust insurance. If they fail to do so and the property suffers loss or damage, the beneficiaries of the trust are entitled to sue the trustees for a breach of their legal responsibilities and the financial losses incurred.
Since the trustees’ liability in this regard is personal and unlimited, it is clearly in their interests to ensure that adequate insurance remains in place at all times.
Specialist property in trust insurance recognises the change of ownership and the trustees’ responsibilities for the building and its contents. After the transfer of ownership to the trust, you no longer have an insurable interest in the property, so any insurance cover that remains in your name becomes automatically null and void.
If the insurance remains in your name, important notices and documents relating to the policy – such as annual renewal notices – continue to be sent to your home address and may not, therefore, be seen by the new owners of the property at the address of the trustees. A failure by the trustees to act upon important communications such as this may result in the policy lapsing – with disastrous results.
The whole business of setting up a trust, transferring property into its name and arranging specialist property in trust insurance may be complicated. Therefore, you may need the help of a solicitor for the setting up of the trust, plus might want to consult a specialist provider of property in trust insurance before buying your policy.