In defence of trusts of the family home

Trusts of the family home have been in the press recently. 

Trusts often carry negative connotations and are often (and perhaps mistakenly) associated with the rich evading tax and hiding assets. That is often the tone of media reporting. 

However, in the case of separating families, trusts of the family home can be used as a flexible and pragmatic tool to manage family resources and ensure positive outcomes for children, and can be used in lots of different ways including for divorcing spouses. The most common arrangement is what is known as a Mesher order. A Mesher order is a Court ordered trust which effectively postpones the sale of the family home until a defined point in the future. The terms of the trust usually provide for one parent (usually a mother with care of the children) to remain living in the property pending sale and regulate strictly when a sale will take place and how the proceeds will then be divided. In practice, Mesher orders are used when there is not enough money for both divorcing spouses to both rehouse if the family home is sold, in which case the Court prioritises owner-occupied housing for the children (and by extension the parent with primary care). However instead of giving the equity in the family home to that parent outright, the other parent retains a share (in effect loaning the parent staying in the home their share of equity) which is returned when the property is sold – normally when the children reach a certain age. 

Another relatively common example is where a financial claim is brought under Schedule 1 of the Children Act 1989 between unmarried parents for the benefit of a child. In such cases, one parent (often the father), can be ordered by the Court to make housing provision available for the children (and consequently the other parent, normally the mother) on a temporary basis until the children attain majority or have completed their education. As the housing provision is temporary (i.e. the property is returned to the father at the end of the term), there are various ways of structuring how the property is held to achieve this. One common method is placing the property into a trust governing the occupation and ownership of the property. 

Trusts of the family home are incredibly useful for separating families and are used frequently up and down the country (i.e. they are not just for the rich, as can be seen above they are often used where there are insufficient funds to provide for two homes after divorce). By avoiding the binary outcomes inherent in outright ownership and allowing a more flexible approach, bespoke outcomes can be put in place for the benefit of the children of the family.  However, trusts do bring with them a degree of legal complexity, including in respect of tax. It is essential to take specialist legal advice, not only in respect of the arrangement itself, but also the wider legal implications to include the tax position at that point in time and in the future.