Gifting the Family Home v A Property Trust

Gifting the Family Home v Establishing a Property Trust

Gifting your home to your child or children feels like it should be a nice and straightforward thing to do.
It’s your house, surely you can give it to whomever you wish? Afterall, you have worked hard all your life to pay off the mortgage, and now you would like your family to benefit from it.

Giving it to the younger generation while you are still living in it is seen by some as a way to avoid inheritance tax, while others believe it will protect the property from being used to fund care home provision should the original owner need that extra support.

Unfortunately, the issue is not quite so simple.

Consider a recent scenario I have dealt with.


Client: “I am moving into my parents’ house so that I can look after them so that they do not have to go into care.

“As a way of showing their appreciation, they would like to gift me their home.”

This seems like a lovely and sensible thing for the parents to do in thanks for the help they will receive. But there are significant risks that must be carefully considered, especially as the property is likely to be the most valuable asset the parents own.

Reasons against Gifting the Family Home

If you gift your property to your child and he/she becomes bankrupt or divorced, then your property may form part of those proceedings and you risk losing the family home.

How would you feel if the house you have lived in all your life, and in which you continue to reside, has to be sold to satisfy a bankruptcy or divorce judgement?

There’s also the prospect of losing the property if your child dies before you.

If the house has been gifted, it then forms part of their estate and ownership of it would therefore pass in accordance with their Will, or the intestacy rules, which could see it going to someone you had no intention of benefitting from your estate.

These unexpected consequences are risks no one should feel comfortable with taking, especially as there are other options available.

Property Trust

One possible solution is to create a Property Trust.

This allows the property to be placed into the names of Trustees who will be responsible for the property “Trust Fund”.  The property is therefore protected from all three of the risks mentioned above.   The parents can be named among the beneficiaries, ensuring they can remain living in the property during their lifetime.
The other Trustees can then benefit once the parents have died.

Please be aware that if the property is placed into a Trust, you can’t secure a loan against it, and the property insurance needs to be in the names of the Trustees.

Placing the property into Trust is not an Inheritance Saving Scheme as you still retain the benefit of living there.

Capital Gains Tax will not be an issue as the property will be your main residence.

Should you require any further information and advice about Estate Planning, please contact Patricia Prescott on 01772 348922.