Can I Put My House in Trust for My Children?

A trust is a useful financial instrument that can help you protect your property and safely hand it down to your children. You can keep your assets including your house in trust until a certain date comes. For example, until your child comes of age, until he/ she marries, or until your grandchildren are born.

It would be a good idea to consider creating a trust instead of making a will because with this instrument, you can safely pass your property to your heirs and save on taxes at the same time. Property held in trust is well protected from creditors as well as relatives prone to overspending.

Let’s discuss how you can go about putting your house in trust for your children in a safe and economical manner.

Real estate and trust

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How does a trust work?

A trust is a fiduciary agreement that helps protect your assets. Three parties are involved in trust relationships: 

  • The trust Settlor also called Grantor or simply Trustor;
  • The Trustee who is responsible for managing the property kept in trust;
  • And the trust Beneficiary – the person in whose interests the property is managed and who can become the owner of the property at some point in time.

A trust is a highly flexible structure that can be fine-tuned in a way that will let you achieve your main goals. When putting your house in trust for your children, you have to pay attention to the following aspects:

  • The type of trust relationships that you would like to establish;
  • Your own role in the process;
  • The lifecycle of the trust and the important dates.

These factors will determine what type of trust you are going to create. If you have only one heir and only one house to put in trust, the task is not going to be difficult at all. However, if you have several children and if you want to put various types of assets in trust, you have to approach the task with greater care. If the situation is complex, you will be well advised to appoint a legal firm the Trustee rather than an individual person.

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Please find out how to create a trust by following the link and request a free consultation on the matter with our experts.

Why should you hand down property to your children via a trust?

Wealthy families and individuals create trusts to achieve the following main goals when passing property to younger generations:

  • To reduce the tax burden: the inheritance tax can be rather high in some countries and property kept under the supervision of the Trustee is not taxed when the trust Settlor dies.
  • To let your children avoid court examinations of their succession cases. This is especially relevant if there can be other claimants upon your house. Imagine that you would like your grandchildren to inherit your house and you would like your children to keep living in it without being able to sell it. This scheme is too complicated for the Last Will and it may be contested in a court of law by some other relatives of yours after you die.
  • To protect property from creditors. If you have legal commitments such as debts, for example, your children are going to inherit them together with the property that you are going to leave. Thus, if you die before you can repay a debt, your house will be sold to cover it and your children will be unable to use it. On the other hand, if you put your house in irrevocable trust, your creditors cannot get hold of it because legally the house does not belong to you but to the trust instead.  
  • Finally, a trust can protect the property-to-be-inherited from unwise decisions on the part of the heirs. It might happen (we certainly wish it wouldn’t but it might) that you will pass away when your children are still too young to make thoughtful decisions. You can put a clause in the Trust Deed specifying that your children can become the rightful owners of the property not after you die but after they reach a certain age, for example.

There are many reasons why creating a trust is a better idea than making a will but every situation is unique, of course. To make the most optimal and balanced choice, please seek professional advice.

What conditions can be specified in the Trust Deed?

When putting your house and other property in trust for your children, you can specify the conditions on which the trust shall cease to exist making your heirs the rightful owners of the property. You have a wide choice of options when specifying these conditions and below we provide only a few examples.

  • You can put forward a single condition (or a single date) on which the trust lifecycle shall be deemed complete. For example, your children can become the owners of your house right after you die, in a year after you die, when they reach a certain age, when they have their own children, and so on.
  • If you put multiple assets in trust for your children, you can dictate that they obtain the property rights in several stages after you die. For example, the property in trust can be used to cover the children’s tuition until they graduate, half of the property can become their possession when they reach a certain age, the house can become their property when they have their own children, and so on.
  • You may also want your grandchildren to inherit your property rather than your children but you also want to keep the latter afloat. In this case, you can command that the property in trust be used to provide lifetime support to your children until your grandchildren come of age, for example. You can instruct the Trustee how often the payments to your children have to be made and in what amounts. You can also use a trust to provide lifetime support to a disabled child of yours. The property in trust can be used to pay the bills from the rehabilitation institution that takes care of the disabled child, for instance.
  • If you have many children who are going to inherit your property when you die, you can command that each of them become the owner of a certain part of property kept in trust when he/ she comes of age. Otherwise, you can command that the trust cease to exist when the youngest child of yours comes of age, and so on. 

Please find out what types of assets can be put in trust by following the link. Some asset types are not trustable.

Should you put your house in revocable or irrevocable trust?

You can create a revocable or an irrevocable trust. Each of the trust types has its own strong and weak sides. Below we discuss the two types of trust in some detail.

An irrevocable trust to hand down property to your children

When you create an irrevocable trust, you determine what property it is going to hold once and forever. (Not exactly ‘forever’ but until its term of existence comes to an end.) You cannot change the list of property held in trust. This means that you cannot recover your property from the trust. Normally, it also means that you cannot add any new property to the trust either.

You can instruct the Trustee how he/ she should manage the property and distribute the income to the beneficiaries but you legally surrender your property rights to the Trustee when creating an irrevocable trust. 

Advantages of irrevocable trust:

  • The property is sealed from creditors and your children will not have to pay the inheritance tax when you die.
  • No other relative (such as an ex-spouse, for example) can claim the property held in trust because it does not legally belong to you.
  • Your house can be kept in trust for several generations: if the trust continues to exist, your children, grandchildren, great-grandchildren, and so on can live in the house without being able to sell it.

Disadvantages of irrevocable trust:

  • You cannot get your property back;
  • An irrevocable trust can cease to exist before the set date but different countries have different regulations pertaining to the issue. The process of liquidating an irrevocable trust is challenging anyway and it inevitably entails legal proceedings.
  • You cannot act as the Trustee in an irrevocable trust that you have created. This means that you cannot manage the property held in trust.

A revocable trust to hand down property to your children

A revocable trust gives you more flexibility but it does not actually provide legal protection of your property:

  • You as the trust Settlor can extract pieces of property from a revocable trust and add new items on the list. You can also revoke the trust at any time.
  • You can act as the Trustor and the Trustee simultaneously if you create a revocable trust. This means that you can keep managing your property and make your own decisions when it comes to distributing the income to the beneficiaries.
  • With a revocable trust, you do not surrender your property rights. This means that the property remains taxable and it will become available to creditors if you make debts.

Theoretically, you can use a revocable trust for inheritance planning purposes but an irrevocable trust would be a better choice in most cases.

Please find out more about trusts from the articles below:

Benefits and risks associated with setting up an offshore trust

Choosing the right Trustee

Who owns the assets kept in trust?

How to put your house in trust for your children

The first thing to do is find an agent who is knowledgeable about trusts and who can help you choose the country to register an inheritance trust.

Secondly, you should carry out an analysis of all the costs and benefits involved in creating a trust. If the amount of the property-to-be-inherited is small, creating a trust may make little economic sense. However, if you put more property in trust in addition to your house, the profits can be higher than the costs. One of the most popular business instruments that many international investors use is a combination of an offshore company and trust registered in Nevis

Finally, you have to consider the banking, confidentiality, and tax issues that will arise when you create a trust. A trust is not created to last for a few days or even a few years: it’s a long-term business project. As far as taxes are concerned, some (offshore) jurisdictions offer attractive tax incentives to the trusts registered on their territories. You should also bear in mind that real property such as a house, for example, is subject to the national laws of the country where it is located. However, if you take into account all the noteworthy aspects associated with creating a trust and if you find a smart assistant in the matter, a trust can be a highly powerful instrument of asset protection and inheritance planning.

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If you would like to put your house in trust for your children, you are welcome to apply for a detailed consultation on the matter with our experts. We will be delighted to help you set up a trust, an offshore company, or a foreign bank account. Please contact us right now and request a free consultation. We always reply promptly!

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