Property is frequently among the most valuable possessions a family holds, and it is therefore worthwhile considering how best to safeguard, manage and transfer it. A family property trust can establish a framework for holding and distributing property, particularly where there are beneficiaries who are at risk, a blended family, or long-term desires. But a trust is not suitable in all cases and should only be established if it has a valid objective.
What Is a Family Property Trust?
A family property trust is a legal arrangement (you can see at https://en.wikipedia.org/wiki/Trust_(law)) in which property is owned by trustees for the benefit of specific beneficiaries. The trustees have control of the property but must manage it in accordance with the terms of the trust.
The trust specifies the terms of the trust, including who can reside in the property, whether it can be let, whether it can be sold, and who should benefit from it in the future.
The main components are:
- The settlor: the individual who establishes the trust and transfers property to the trust.
- The trustees: the individuals who manage the property in the trust.
- The beneficiaries: the individuals who will benefit from the property.
- The trust deed: the document that outlines the trust terms.
Put simply, a family property trust divides control from entitlement. Trustees exercise authority; beneficiaries receive the benefit under the terms of the trust.
How a Family Property Trust Works
Once the property is in the trust, the trustees assume legal obligations. They may be required to insure the property, pay expenses, carry out maintenance, maintain records, collect rent, or determine whether the property should be sold.
The trustees cannot regard the property as their own. They are obliged to act in the best interests of the beneficiaries and adhere to the trust deed. Therefore, the selection of trustees is critical. Trustees must be dependable, capable and able to make objective decisions.
A trust can be established during a person’s life, or as part of succession planning upon death. The most appropriate time for establishing a trust will depend on the rationale for its creation and the broader family dynamics.
Why Families Use Property Trusts
Families often contemplate a property trust when a straightforward gift or succession appears too hazardous or restrictive. A trust offers greater control over the disposition of a property and the timing of when beneficiaries can access it.
A trust might enable a surviving spouse to stay in the family home while maintaining the property for children in due course. A trust could also be beneficial where beneficiaries are too young, lack financial acumen, have a disability or are likely to require assistance in managing property.
Trusts can also be helpful where family ties are complex. In a blended family, partners, children and stepchildren might have differing views on how a property should be dealt with. A well-drafted trust can clarify intentions and minimize the risk of conflict.
Potential Benefits of a Family Property Trust
A family property trust can provide a range of benefits if appropriately employed.
Control Over the Future
The trust can specify how the property should be utilized, who is entitled to benefit from it, and when significant choices should be made. This might mean keeping the property within the family or avoiding a sale the deceased wouldn’t want.
Help for beneficiaries who aren’t ready to handle assets
Trustees can look after a property on behalf of a beneficiary who isn’t yet able or willing to take ownership. Trust gives the property some protection until that time.
Long-term planning and certainty
Rather than leaving the question of who gets the property to be settled at a later date, a family property trust sets out a structure now.
Protection against poor decisions by beneficiaries
Sometimes beneficiaries aren’t suitable owners of property. For example, they might sell the property, mortgage it, or otherwise mismanage it. A trust helps avoid this because trustees are responsible for making sure that the property is properly looked after and used in line with the purpose of the trust.
Downsides of a family property trust
As mentioned above, a family property trust is not a quick fix. There will be costs to set up the trust, and there may be ongoing costs associated with managing the trust, such as keeping records, arranging for the maintenance and dealing with tax issues.
Tax can be particularly complicated. Any transfers of property to the trust, any rent received and any disposal of the property may trigger a tax liability (check for more info) which needs to be understood before the trust is created.
A trust also tends to be inflexible once the property has been transferred into it. So you need to make sure that any trust created is appropriate for the long term.
Is family property trust right for you?
- The property is intended for the benefit of someone under the age of 18, or someone who is vulnerable.
- You want your partner to live on the property for the rest of their life, but you don’t want them to own the property outright.
- You want the property to stay with the family in the longer term.
- There are complex family relationships to consider.
- You have concerns about how your beneficiaries might behave if they inherited the property.
What to think about when setting up a trust
Before you consider a family property trust with Futura Planning Ltd, you’ll want to work out who should be the trustees, who should be the beneficiaries and what should happen to the property in the long term. You’ll also need to think about who should pay for things like insurance, repairs and taxes, as well as professional fees for managing the trust.
Finding the right solution for your property
A family property trust can help protect property and create certainty about the future. They might be especially useful if you want the property to remain in the family, if your beneficiaries aren’t mature enough to receive the property, or if your family situation is particularly complex.
The first thing you should do is consider what you are trying to achieve. If you think a trust will solve the problem, then it’s probably worth considering whether it is the right choice. If not, there may be other solutions to explore.
