For many families, the home is the most valuable asset in the estate — and the one that generates the most concern when it comes to inheritance tax, care fees, and passing wealth to the next generation. A property trust can be a powerful tool in a broader estate planning strategy, but it works best when it is part of a coordinated plan rather than a standalone decision.
The Family Home in the Context of Estate Planning
The family home often represents the majority of a person's estate. For estates above the nil-rate band (currently £325,000, or £500,000 with the residence nil-rate band), the property may be subject to inheritance tax at 40% on the excess. A property trust — particularly an irrevocable living trust — can move the home outside the taxable estate, provided the settlor survives seven years after the transfer.
Trusts and the Residence Nil-Rate Band
The residence nil-rate band (RNRB) allows an additional £175,000 of IHT relief when a property is left to direct descendants. However, the RNRB is only available when the property passes to children or grandchildren — and the rules around trusts and the RNRB are complex. Some trust structures preserve the RNRB; others do not. Specialist advice is essential to ensure you do not inadvertently lose this relief.
A testamentary trust — created within your will — can qualify for the residence nil-rate band if structured correctly. A lifetime trust may not. The interaction between trust structures and the RNRB is one of the most complex areas of estate planning, and one where specialist advice is particularly valuable.
Coordinating a Trust with Your Will
A property trust does not replace a will — it works alongside it. Your will should address all assets not held in the trust, including bank accounts, investments, personal possessions, and any property not transferred into the trust. A well-coordinated estate plan ensures that all assets pass to the right people in the most tax-efficient way, with no gaps or conflicts between the trust and the will.
Trusts for Blended Families
For families where one or both partners have children from a previous relationship, a property trust can be particularly valuable. A life interest trust allows a surviving spouse or partner to live in the property until their death, at which point it passes to the children from the first relationship. This protects both the surviving partner and the children — without the risk of the property passing to a new partner's family.
When a Trust Makes Sense for the Family Home
A property trust is most likely to be appropriate where: the estate is above the IHT threshold; there are concerns about care home fees; the family includes minor children who cannot legally own property; there are blended family dynamics to manage; or there is a risk of a beneficiary's financial difficulties affecting the property. In all other cases, a well-drafted will may be sufficient.
Getting the Right Advice
Estate planning for the family home is one of the most important financial decisions a family can make. The right structure depends on the value of the estate, the family's circumstances, and the long-term goals of the settlor. PDA Law's specialist wills and trusts team can assess your position and recommend the most appropriate approach — whether that is a trust, a will, or a combination of both.