Placing property in trust is sometimes promoted as a straightforward estate planning tool. In practice, there are significant disadvantages that you need to weigh up carefully. Here is an honest assessment.
High Setup and Ongoing Costs
Setting up a property trust requires specialist solicitor fees, which are typically higher than the cost of a standard will. If you appoint a professional trustee, you will also pay ongoing management fees. There are costs associated with registering the trust with HMRC's Trust Registration Service, preparing annual accounts, and filing trust tax returns. These costs accumulate over time.
Loss of Control
With an irrevocable trust, the trustees — not you — manage the property. You cannot sell, remortgage, or make decisions about the property without trustee consent. Even with a revocable trust, your control is limited by the trust deed. This loss of autonomy can be significant, particularly if your circumstances change.
Changing the terms of an irrevocable trust typically requires the consent of all beneficiaries and, in some cases, a court order. If your circumstances change after the trust is established, you may find yourself locked into arrangements that no longer serve your interests.
Complex Tax Implications
Trusts can trigger unexpected tax charges — including inheritance tax, capital gains tax, income tax, and stamp duty land tax. The tax treatment of property trusts is complex and depends on the type of trust, the value of the property, and your personal circumstances. Specialist advice is essential before proceeding.
Limited Protection from Creditors
A common misconception is that placing a property in trust protects it from creditors. In reality, assets in a revocable trust remain accessible to creditors. Even irrevocable trusts can be challenged if the transfer was made to deliberately defeat creditors.
Simpler Alternatives May Achieve the Same Goals
For most homeowners, a well-drafted will — possibly combined with a change from joint tenants to tenants in common — achieves the same estate planning goals at a fraction of the cost and complexity. A specialist solicitor can help you identify the most appropriate approach.