Can I Put My House in Trust for My Children?

Yes, but it's usually more complicated and less useful than you'd think. Property trusts can protect your home in certain situations, but they don't work for care fee avoidance, and there are significant downsides.

Many people ask about putting their house in trust hoping to avoid care fees or inheritance tax. The honest answer is: it rarely achieves those goals. Here's what you need to know.

What Is a Property Trust?

A trust is a legal arrangement where:

• You transfer ownership of your house to trustees
• Trustees hold the property for the benefit of beneficiaries (your children)
• Rules you set determine how the property is managed and distributed

Types of Property Trust

Bare Trust

• Beneficiaries have absolute right to the property
• Trustees hold it in name only
• Simple but offers minimal protection

Life Interest Trust

• One person (often you or your spouse) can live there for life
• On their death, property passes to beneficiaries
• Good for protecting children's inheritance in second marriages

Discretionary Trust

• Trustees decide who benefits and when
• Maximum flexibility and protection
• Most complex, with tax implications

What Property Trusts CAN Do

1. Protect Your Home for Children (Second Marriages)

If you remarry, you might worry your new spouse could leave everything to their own children, cutting yours out. A life interest trust can:

• Let your spouse live in the house after you die
• Ensure it passes to your children when your spouse dies
• Prevent your spouse remarrying and their new partner inheriting

2. Protect Against Spendthrift Children

If a child has financial problems, their inheritance could go to creditors. A trust can:

• Keep the house out of their direct ownership
• Protect against bankruptcy
• Shield from divorce settlements (to some extent)

3. Provide for Vulnerable Beneficiaries

For children with disabilities or special needs:

• Preserve their benefit entitlements
• Ensure ongoing accommodation and support
• Professional trustees can manage long-term

What Property Trusts CANNOT Do

1. Avoid Care Home Fees

This is the big one. If you put your house in trust to avoid paying for care:

• It's "deprivation of assets"
• Local authorities can still assess you as if you own the property
• You'll be charged for care as if you hadn't transferred it

The test is: Was avoiding care fees a "significant operative purpose"? If you're doing it because you're worried about care costs, the answer is yes.

2. Avoid Inheritance Tax (Usually)

If you continue living in the property:

• It's a "gift with reservation of benefit"
• Still counts as part of your estate for IHT
• You haven't genuinely given it away

You'd have to move out completely, pay full market rent, or give up all benefit from the property for it to work. This rarely makes practical sense.

3. Give You Complete Protection While Living There

If you want to keep living in the property, you can't fully give it away. The benefits and protections are limited.

The Downsides of Property Trusts

Loss of Control

• You no longer own your home
• Need trustee agreement for major decisions
• Can't sell or remortgage without involvement

Costs

• Setting up a trust: £500-2,000+ legal fees
• Ongoing administration costs
• Potential tax returns and compliance

Tax Complications

• Capital Gains Tax may apply on transfer
• Periodic tax charges on some trusts
• Exit charges when property leaves trust
• May lose residence nil-rate band for IHT

Mortgage Issues

• Lenders usually won't lend on trust property
• Existing mortgage may need consent
• Could trigger early repayment

Better Alternatives

For Protecting Children's Inheritance

Life interest trust in your will (not set up now)

• Trust only created when you die
• You keep full ownership while alive
• No complications, no ongoing costs
• Spouse can live there; children inherit eventually

For Second Marriages

Tenants in common with life interest will

• Each spouse owns their share
• Your share goes to your children via trust in will
• Surviving spouse has right to live there

For Tax Planning

Other IHT strategies

• Lifetime gifts (7-year rule)
• Gifts from surplus income
• Business/agricultural relief if applicable
• Life insurance in trust to pay the tax

When Property Trusts DO Make Sense

• You're genuinely moving out and giving the property away
• Protecting for a disabled child who can't manage property
• You have very specific complex family arrangements
• You've had proper professional advice confirming the benefit

Warning: Trust Schemes to Avoid

Be cautious about:

• High-pressure sales tactics — legitimate advisers don't pressure
• Guaranteed care fee avoidance — it doesn't work
• Expensive packaged schemes — may promise more than they deliver
• Anyone not properly regulated — check FCA or SRA registration

The Old Way vs Our Way

The Old Way	Our Way
Trust now to avoid care fees	Understand deprivation rules — it doesn't work
Expensive lifetime trust schemes	Trust in will achieves similar goals, cheaper
Believe marketing claims	Get independent advice on what actually works
Give up home ownership and control	Keep control while alive, protect via will