Understanding Trusts and Their Impact on Later Life Lending

Trusts are a common part of estate planning, and many clients encounter them through will-writing services, inheritance planning, or recommendations from solicitors. But while trusts can bring certain benefits, they can also create significant barriers when those clients later consider accessing their property wealth through equity release.

This guide helps you understand how different types of trusts interact with later life lending, the implications for clients, and why early specialist legal guidance is essential.

What is a trust?

A trust is a legal arrangement where assets, often including the client’s home, are held by trustees on behalf of beneficiaries. Clients may use trusts for a variety of reasons, including protecting their children’s inheritance, meeting specific wishes in their Will, or supporting tax or estate planning strategies. 

However, depending on how the trust is written, placing a property into a trust can remove it from the client’s estate for lending purposes, thereby preventing or delaying access to later life lending products.

Why trusts often create issues for equity release

To proceed with later life lending, the property must be held in the client’s name, either individually, jointly, or as tenants in common. When a solicitor completes official title checks, they can quickly identify how a property is held, with common classifications including:

Joint tenants: Ownership automatically passes to the surviving spouse on death. It does not pass under a Will, and probate is not required to transfer ownership.

Tenants in common: A Form A restriction will usually appear on the title where a property is held as tenants in common. This does not normally cause issues. Where there is a Will that leaves the estate to the surviving spouse and a death certificate, the surviving spouse can have the property transferred into their sole name without needing probate. (Please note, no further lending is available once one party dies, even if there is still an unused drawdown facility remaining)

Property in trust: This is usually noted in the proprietorship register at HM Land Registry. The challenges arise when trusts affect who holds the legal and beneficial interest, particularly where life interest trusts or children’s beneficial interests are involved.

The problem with life interest trusts

If a property includes a life interest trust (e.g., the surviving spouse can live there, but children are the beneficiaries), the deceased’s share passes directly to the beneficiaries, meaning that the surviving spouse does not hold full beneficial ownership, and the trust must normally be dismantled before equity release can proceed.

This introduces additional legal work as there are extra parties needing to provide identification and potential independent legal advice for beneficiaries. This can lead to longer transaction times and additional costs for the client.

These surprises often leave clients and advisers frustrated, especially when the trust was originally created for inheritance protection, with later life lending not considered.

Why specialist legal advice matters

Solicitors with trust expertise may correctly state that properties in trust can be mortgaged under general property law.

However, the later life lending industry operates with lender-specific requirements, and:

• No lender will accept a property held in trust.

• No lender will allow a trust to be added after completion of the equity release plan.*
  This nuance is frequently misunderstood outside of the sector.

Advisers can add value by helping clients understand the long term impact of trust decisions, how they affect their ability to access later life lending, and the potential cost and delay of dismantling unsuitable trusts later.

Trusts created after equity release

Some solicitors advise clients that they can set up a property protection trust after taking out an equity release plan. Legally, this may be possible (for example, by splitting ownership into tenants in common with life-interest arrangements).

But this can still cause issues as one spouse dies; the surviving spouse may only have a lifetime interest, not full ownership, preventing them from accessing any remaining drawdown facility
Dismantling the trust would again be required, unless a variation to the Will is agreed within two years and all beneficiaries’ consent. This exposes clients to unintended consequences, often at moments of vulnerability.

Key takeaways for advisers

To protect client outcomes and avoid costly delays:

1. Ask early about any existing or intended trusts: Many clients forget they have trusts written into their Wills.

2. Encourage clients to use a solicitor familiar with later life lending: General trust advice may not consider lender requirements.

3. Flag that dismantling a trust will cost extra fees and let them know it can be time-consuming, especially where multiple beneficiaries or solicitors are involved.

4. Highlight that trusts can limit future flexibility, including access to drawdown, inheritance options, and timing of funds.

Supporting your clients with confidence

Trusts can play an important role in estate planning, but they can also unintentionally limit a client’s ability to use their property wealth later in life. By understanding the industry’s requirements and guiding clients toward specialist later life lending legal advice, advisers can help prevent delays, unexpected costs, and poor outcomes.

This article is for information purposes only and does not constitute legal or financial advice. Advisers should refer to lender criteria and seek professional legal input where necessary.

Written in partnership with Carol Nuttall, Solicitor, Adlington Law.

For Intermediary Use Only.
*At the time of writing.