Property trusts are often presented as a straightforward solution to estate planning challenges. In practice, they come with a range of pitfalls that are rarely mentioned in the sales pitch. Here is an honest explanation of what can go wrong.
Pitfall 1: Family Friction
Putting a house in trust for children is a common intention — but it often creates tension. The children have a beneficial interest in the property but no right to occupy or use it without trustee consent. If family relationships deteriorate, or if beneficiaries disagree with trustee decisions, disputes can arise that are costly and distressing to resolve.
Pitfall 2: Limited Creditor Protection
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 — a transaction at an undervalue that can be set aside by the courts.
Placing your home in trust specifically to avoid care fees is unlikely to succeed. Local authorities can look back at asset transfers and treat a deliberate deprivation of assets as still belonging to you for care fee assessment purposes.
Pitfall 3: Difficulty Changing the Terms
Once an irrevocable trust is established, changing its terms typically requires the consent of all beneficiaries and, in some cases, a court order. If your circumstances change — a divorce, a falling-out with a beneficiary, a change in your financial needs — you may find yourself locked into arrangements that no longer serve your interests.
Pitfall 4: Administrative Burden
Trusts are not a 'set and forget' arrangement. Trustees have legal duties to keep accurate records, prepare accounts, file tax returns, and act in the best interests of the beneficiaries. Failure to comply with trustee obligations can result in personal liability.
Getting the Right Advice
The pitfalls of home trusts are real — but they are not inevitable if you take the right advice from the outset. A specialist solicitor can assess whether a trust is genuinely appropriate for your circumstances, and recommend alternatives where it is not.