Living Trusts or Family Trusts are something that you may be considering creating as part of organising your affairs, but is it the right fit for you? Here is our look at the pros and cons to help you make an informed decision.
The Pros
- You can formally recognise any contributions, especially financial ones, that family members have made to your estate. This is especially useful if they have a stake or have contributed towards property.
- It can help to avoid any problems caused by family politics.
- The trust outlines where your property is to go once you’ve died
- Property in a Family Trust can be sold much faster as no grant of probate is needed.
- Creating the trust allows you to remain in your home for as long as you as wish.
- If the property is sold prior to your death, you are still entitled to the proceeds of the sale and can use the money to supplement your income if it is needed when finding somewhere else to live.
The Cons
- Once the trust has been created, the property is transferred into the name of the trustees. This means that though you can still live in your home, you will no longer legally own it. The trustees will be able to act on their own discretion when it comes to any matters relating to the property.
- The number of lenders willing to deal with property in trusts as a form of capital is very limited, and you may have trouble gaining loans such as equity release.
- The building insurance becomes the responsibility of the trustees, but the contents insurance remains your responsibility.
- You risk the trustees mismanaging the trust.
Choosing Trustees
You will need to choose a minimum of two trustees, but no more than four to manage the trust. They will need to be people that you can trust, especially as you will be turning over a large part of your estate into their care. Trustees are bound to act according to the Trust Deed (which outlines your wishes), but there are some areas within the management of the trust where they are able to exercise their own discretion. You will also need to decide whether you want trustees to make decisions by a majority or whether all decisions must be taken unanimously.
Some people choose to make the beneficiaries of the trust trustees. However, this can cause some issues in the form of a conflict of interest. If they will receive the property once you have left it rather than when you die, they may actively seek to push you into a residential community or home in order to receive their share of the trust.
Others choose to use professionals who have no stake in the trust at all as they feel that this can lead to a more impartial approach to managing the trust.
Need help with deciding whether you need living trusts or family trusts? Contact our experts today to talk about your will and which solutions work best for your situation.