What happens to a house left in a will trust?

Leaving a house in a trust through a will is a popular and effective method for managing and distributing property after death. In 2023, the Trust Registration Service reported over 633,000 registered trusts and estates, showing the massive role trusts play in estate planning across the UK.

A will trust provides a structured inheritance delivery system, which makes sure the property benefits specific individuals or entities while protecting it from risks such as mismanagement or unintended sales. However, the process of managing or selling a house left in trust involves some legal and practical considerations that can vary depending on the type of trust and its terms.

In this guide, we will explain what happens when a house is placed in a trust in a will, how different types of trusts operate, and what trustees and beneficiaries need to know.

What is a will trust?

A trust is a legal arrangement involving three parties; the settlor, the trustee and the beneficiary. The settlor is the person who transfers property to the trust or places it under the control of the trustee. The trustee is the individual, corporate entity or public body responsible for managing the property on behalf of the beneficiary. And, the beneficiary is the person or entity that benefits from the assets held in the trust.

A will trust is a trusted created through the terms of a person's will, in this case:

• The testator (the person making the will) acts as the settlor, as they choose to transfer their estate into a trust.

• The appointed trustees are responsible for administering the trust and managing the estate according to the testator’s wishes outlined in the will.

• The will also specifies the beneficiaries who will benefit from the trust. Beneficiaries can be individuals, corporate entities or even charities, depending on the purpose of the trust.

Trustees can include individuals over the age of 18, companies or public organisations. They are legally bound to act in the best interests of the beneficiaries and according to the terms of the trust.

The trust might serve various purposes, such as providing financial support for family members, ensuring assets are managed for minor children, or fulfilling a charitable aim. A will trust can give the testator greater control over how their assets are distributed and used after their death, allowing for structured or conditional inheritance plans.

What happens to a house left in a trust?

When a house is left in a trust, it becomes the responsibility of a trustee to manage the asset for the benefit of the beneficiary. The trustee is legally obligated to act in the best interest of the beneficiary and must follow the terms outlined in the trust deed. These terms may specify how the house and other assets should be managed or provide the trustee with discretionary powers.

The trustee manages the house and other assets according to the trust’s terms. This could include maintaining the property, renting it out, or making decisions about the sale. Trustees must act in the beneficiary’s best interest, particularly if the beneficiary is:

• A minor too young to manage the property

• An elderly individual needing care

• Someone with a disability or impairment that prevents them from handling the assets.

The Trusts of Land and Appointment of Trustees Act (TLATA) allows beneficiaries to occupy or sell the house as they choose, rather than obligating the trustee to sell the property. However, the trustee still oversees decisions and may need to consult beneficiaries in specific situations like selling the house.

If the house is sold, the proceeds remain under the trust’s control, managed by the trustee according to the trust deed. This makes sure the funds are used for the beneficiary’s benefit.

How does a property trust affect beneficiaries?

A property trust can provide security, structure and protection for beneficiaries, ensuring that the property is managed and distributed in a way that aligns with the settlor’s wishes. However, it can also limit beneficiaries’ control and impose conditions on how they benefit from the property.

Here are some of the ways a property trust can impact beneficiaries:

How do Rules of Intestacy work with property trusts?

The Rules of Intestacy, governed primarily by the Administration of Estates Act 1925 and the Intestates’ Estates Act 1952, determine the distribution of an estate when a person dies without a valid will. 

If the estate includes property held in a trust, the interaction between the rules of intestacy and the trust can significantly affect beneficiaries and trustees.

Property in a trust and intestacy rules

If a property was already held in a trust before the deceased’s death, it generally does not fall under intestacy rules. Instead, the trust deed governs how the property is managed and distributed. 

For assets not covered by a trust, the intestacy rules determine how they are distributed among surviving family members, prioritising the spouse or civil partner and then blood relatives in a specific order of priority. 

Statutory trusts under intestacy

The intestacy rules often require the creation of statutory trusts, particularly when:

• Beneficiaries are under the age of 18.

• Property or assets are to be shared between multiple beneficiaries.

The trustees of these statutory trusts are usually the personal representatives administering the estate. Their duties and powers are outlined in the Trustee Act 1925.

Trustee powers & responsibilities

The powers and obligations of trustees under intestacy are critical to ensuring fair administration of the trust. Sections 31 and 32 of the Trustee Act 1925, dictate:

• Trustees can distribute income or capital from the trust fund to beneficiaries under 18, provided certain conditions are met. 

• These provisions allow trustees to address beneficiaries’ immediate financial needs while protecting the capital for future use.

Trustees must act in the best interests of the beneficiaries and within the scope of the trust deed or intestacy laws.

Family provision & court intervention

Under the Inheritance (Provision for Family and Dependants) Act 1975, certain family members and dependants can apply to the court if they believe the intestacy rules or trust distributions fail to provide reasonable financial provision. The court can consider:

• The applicant’s needs and financial resources.

• The size and nature of the estate, including trust assets.

• The obligations and responsibilities the deceased had toward the applicant.

Priority of beneficiaries under intestacy

The Law Commission’s 2011 recommendations, now implemented, clarify the priority order for beneficiaries:

• Spouse or civil partner: They inherit all or a significant share of the estate, depending on whether there are surviving descendants.

• Children or descendants: If the spouse shares the estate, children often inherit the remaining property, possibly held in a trust until they reach 18.

• Other relatives: If no spouse or descendants exist, the rules prioritise parents, siblings, grandparents and more distant relatives in descending order or priority.

• If no relatives are found, the estate may pass to the Crown as Bona Vacantia (ownerless property).

What types of trusts are commonly used for property in a will?

Trusts created in a will, known as testamentary trusts, are designed to manage and distribute assets after death according to the testator’s wishes. Below is a detailed explanation of the most commonly used trusts in the UK:

What are life interest trusts?

A life interest trust grants one individual, called the “life tenant,” the right to live in or benefit from a property during their lifetime. After the life tenant’s death, the property passes to another group of beneficiaries, known as the “remaindermen.”

The life tenant does not own the property outright but can occupy or receive income from it (e.g. rental income) as long as they live. The trustees manage the property to ensure the life tenant’s needs are met.

A life interest trust ensures that a surviving spouse or partner has housing security while preserving the property for children or other relatives. It is commonly used in second marriages to balance the needs of a surviving spouse with those of children from a previous marriage. 

For example, if a father leaves his house in a trust for his second wife to live in until her death, after which the property passes to his children from the first marriage.

What is a discretionary trust?

A discretionary trust gives trustees the flexibility to decide how and when to distribute the property or proceeds among a group of beneficiaries. The trust deed names a group of potential beneficiaries but leaves it to the trustees to decide who benefits, how much they receive, and when – which can depend on financial need or health.

Discretionary trusts exist to provide flexibility for beneficiaries with varying or unpredictable needs; they are commonly used for:

• Minor children: To ensure funds are available for education or care.

• Disabled beneficiaries: To provide ongoing support without affecting benefits.

• Financially unstable individuals: To safeguard assets from mismanagement or creditors.

For example, a trust is set up for grandchildren, allowing trustees to distribute funds for education or emergencies as needed, rather than dividing the property equally.

What is a Nil-Rate Band discretionary trust?

A Nil-Rate Band discretionary trust is designed to reduce Inheritance Tax by placing part of the estate into a trust. The trust utilises the nil-rate band to transfer assets into a trust, keeping them outside the taxable estate of the surviving spouse. Trustees can distribute these assets to beneficiaries later.

The Nil Rate Band Discretionary trust is to minimise Inheritance Tax liability for beneficiaries, and often benefits a surviving spouse or children as it ensures assets remain protected from taxation.

While less common due to the introduction of the Transferable Nil Rate Band, these trusts can still be useful in some tax planning situations. For example, a trust is set up to hold £325,000 for children while allowing the surviving spouse to benefit from other assets tax free.

How do bare trusts work?

A bare trust holds property on behalf of a specific beneficiary who gains full ownership at a set age (usually 18 in England and Wales). Trustees manage the property until the beneficiary reaches adulthood, at which point they gain complete control of the asset. Trustees have no discretion over how the property is used once the beneficiary takes ownership.

A bare trusts purpose is to protect property for young beneficiaries until they are legally and financially capable of managing it. This ensures a direct transfer of property, often for simplicity. For example, a parent leaves a house in trust for their child, to be handed over when the child turns 18.

What are property protection trusts?

A property protection trust safeguards the property from being sold to cover care home fees, or it ensures it is passed onto intended beneficiaries. The trust typically combines elements of a life interest trust, allowing a surviving spouse to live in the property while protecting the remainder of other beneficiaries. 

The purpose of property protection trusts is to protect property from being used to pay for care costs, making sure it is preserved for beneficiaries. It also helps prevent the property from being sold outside the family or against the testator’s wishes.

For example, a trust is set up to allow a surviving spouse to live in the family home, with the property guaranteed to pass to their children upon the spouse’s death.

How to sell a home in a trust 

Selling a home held in a trust can be more complicated than a standard house sale due to the legal responsibilities of trustees and the requirements set out in the trust deed. 

When selling a house as a trustee, you will need to provide a title guarantee; with the type of guarantee depending on your own knowledge and authority:

When selling a home in a trust is similar to a standard sale, there are additional legal and procedural steps to follow:

If you need any help, don’t hesitate to reach out. Selling a home in a trust can be a complicated and confusing process. If you’re unsure about your rights or responsibilities as a trustee, our team is here to guide you. Contact us at 0800 024 8444 or use our Get An Offer button to enter your details. We’ll help you navigate the process and ensure you get a smooth house sale.