Is it wise to transfer your property into a trust?

Article summary

• Trusts benefit from total asset protection and, as such, ensure that properties cannot be seized by creditors.
• Because a property in a trust no longer falls into one’s personal estate, it is not subject to inheritance tax.
• However, should the relationship between the founder and trustee go sour, beneficiaries may not have access to the income or benefits of the property.
• Other potential disincentives include costs involved in setting up and administering a trust plus higher capital gains tax.

It’s a common perception that trusts are only for the very wealthy, but could property owners benefit from placing their property into a trust and protecting one of their most valuable assets as well as the future income of their family?

Here we look at the pros and cons of transferring into a trust.

Transferring property into a trust: The benefits

• A trust keeps your assets out of the hands of creditors.
• You can still enjoy the benefits of owning a home, such as rental income.
• The property no longer falls into your personal estate, and thus is not subject to inheritance tax.
• A trust protects your children if something should happen to you. The trustees will administer the assets in the trust until such time as the beneficiaries reach legal age.
• Trusts do away with the need for an estate executor, who would normally be responsible for administering a deceased estate; a service which entitles them to a commission.
• Your assets are protected by a professional specialising in the task.
• Trusts offer more privacy than a will. Unlike wills, they don’t need to become a matter of public record.
• Trusts are flexible and can be structured to meet the needs of the individual or organisation in question (for example, a charity organisation).
• You can structure the trust to cater to the needs of heirs with special needs.

The drawbacks

• Trusts require a lot of admin, as they need to be planned. This usually requires the aid of legal professionals.
• Trusts include costs, such as management fees.
• Trusts may be subject to estate and capital gains tax, depending on how they are set up.
• You don’t have direct control over what you place in the trust, which is managed by a trustee. It‘s important to enlist trustees who are competent and trustworthy.

In summation

Trusts grant a degree of protection and ensure your assets are professionally managed, but require thought to be put into the appointment of a trustee, the structuring of the trust, and the designated heirs.

If you trust the trustee and want to avoid the complications of estate management, a trust may be the right decision for you.