Giving your house to your children now.

Should it be done: Usually, no. Of course, it depends on the reasons and individual circumstances. 

Since 2007, married couples and those in civil partnerships have been able to transfer unused IHT allowances, making certain trusts far less attractive. Many now consider Inter-vivos trusts (Living trusts) the old-fashioned “snake oil” of Will-writing. This is because clients often do not appreciate the risks and are influenced by the benefits usually found elsewhere. 

Inter-vivos just means between the living, i.e., giving to a trust while alive rather than through your will when you are dead. 

Clients often tell us that either an advert on Facebook, usually with brightly coloured writing, or “Dave” down the pub said it is the best thing to do to avoid “well basically” everything from probate to care fees.

Clients even say that their parents had one; I ask: 

Q) Were they assessed for care home costs? A) No. 

Q) Did they pay market rates for rent? A) No. 

Q) Did they live elsewhere? 

Q) Did they record the frequency and reason for visiting the property? A) No 

Then, on the surface, they luckily only wasted every penny spent on the trust rather than facing hefty legal and tax costs. 

There are two types of Living Trust. 

Revocable trusts can be cancelled or amended during the lifetime of the Grantor (the person giving to the trusts). However, they remain part of the grantor's estate for tax purposes. This is hardly an advantage because testamentary trusts (Will Trusts) can be used without risks.

 Irrevocable Trusts cannot be modified without a consensus and/or a court order, as they are no longer part of the grantor's estate. This equates to a loss of control of the assets. Though they are more protected from creditors and inheritance tax, it is essential to title and transfer assets correctly to ensure that the trust protects them. 

Advantages of inter-vivos trusts. 

They can avoid the need for probate for all the elements correctly placed in the trust.

 Disadvantages/ risks of Inter-vivos trusts 

• If your adult child divorces, their share of your home is part of any settlement.
• If your adult child becomes bankrupt, your home may have to be sold to pay their debts.
• If your child needs residential care, the trust can be assessed to pay for their care.
• If you fall out with your child, you could be forced from your home.
• There may be insufficient assets to make gifts in your will
• If you need care and your local authority thinks you only did this to avoid paying, they DO challenge it.

 TAX - This will be a second home for your children – meaning; 

• They could pay capital gains on any future sale.
• They pay Stamp Duty at a higher rate if they purchase an alternative home for you.
• You may face an immediate 20% charge on anything over £325k put in the trust, including anything gifted in the last seven years.
• Trustees have to submit tax returns to HMRC
• Every ten years, there is a further 6% tax charge (Over £325k)
• You have to pay income tax on any payments from the trust.
• There are also exit charges, often 20%, on assets taken out of the trust.
  
• If you continue to live in it, it is STILL in your estate for IHT purposes when you die 
   
   Please think carefully before taking this step. There are much better ways of protecting your home.