What are Protective Property Trusts?
(If you already have protective property trust Wills, you should read this page Protective Property Trust Wills.)
Be aware that we rarely recommend Protective Property Trusts these days as first choice and even offer a “trade in allowance” if you already have property trust Wills.
Protective Property Trusts
Wills involve two parts:
- First, your home needs to be owned by both of you: the ownership is then changed so that you each own (typically) half each rather than the usual situation where you technically each own all of it.
- This allows each of you to write a Last Will which allows the other partner the lifetime right to reside in the other half of the home – which is technically owned by the other partner (or to move). So when the first of you dies, their half of the property goes into special Protective Property Trusts written into the Will.
The survivor can pretty much act is if they own the whole property, though half will be owned by the Protective Property Trust. There are restrictions such as not being able to take out a mortgage, and the survivor not owning the capital representing the other half of the home.
The benefits of Protective Property Trusts include:
1) Disinheritance of children through remarriage of the survivor – they can only leave their the property as they wish, and not the half owned by the person who died which will eventually – go to their beneficiaries.
2) Substantial Protection against Care Fees – unless you are unfortunate enough to BOTH need long term care, but even then there is the possibility of saving some of your capital. But this protection will not be available if the Property Trust Wills were put in place after there was a reasonable possibility of long term care being needed.
3) The Protective Property Trusts can give some protection against other creditors too.
Asset Protection Trusts: The Protective Property Trust
The Protective Property Trust (also known as a Life Interest Trust) – a may be very useful addition to you Last Will – as long as you don’t delay:
You may wish to include a Protective Property Trust in your Will if:
1) Your family contains children from previous relationships and you want to ensure fairness for them without disadvantaging your spouse or partner. Or you may think it likely that your spouse will remarry after your death, and wish to protect the interests of your children against any future relationship, without harming your spouses’ interests.
2) You and your spouse or partner are concerned that you will be one of around 70,000 people who lose their inheritance to the Local Council through Community Care Tax – the most vicious tax of all – which can wipe out all but the last £14,500 of your estate.
3) You do not wish to leave your share of your property to your Partner but do wish to give them the right to live in the property for the rest of their lives, before the property passes to your children. (You may well provoke a claim under the Inheritance Act if this aspect is not dealt with thoughtfully.)
If you are worried that you may need nursing home care in the future, when your local authority may have the right to force the sale your home (or put a charge on it) and use the proceeds to meet the costs of your care. You cannot transfer your property to relatives to avoid paying nursing home fees, without falling foul of the law, but you can include a Protective Property Trust in your Will, containing instructions that upon the death of you or your spouse, that half share of the property is put in trust for your children, instead of passing direct to the surviving spouse.
In this way, the half share of the property that has been put in trust is protected and the surviving spouse may continue to live in the property. That half share is sheltered from your local Councils Community Care Tax, levied on those needing long term care who have assets over £14,500. On the death of the surviving spouse or partner, the half share of the property owned by the trust can be given to the children.
A Protective Property Trust in your Will can contain a provision that upon your death, your share of the property is put in trust allowing your partner to continue to live in the property for his/her lifetime, but upon his/her death, to be given to your children or other preferred beneficiaries. In this way, you can make provision for your partner, whilst protecting your share of the property for your own children.
How your property is owned
Most homes are held as Joint Tenants:
Joint tenancy – is where the parties own a property together and upon the death of one person the property automatically passes to the survivor whatever the will says.
Tenancy in common – this is where each person owns part of the property in their own right and can leave their share to whoever they like. This allows more flexible planning for Asset Protection (such as against Community Care Tax) and Inheritance Tax.
Bearing in mind that protective Property Trusts could save half the value of your joint estates, the cost is almost trivial – about the cost of two days care fees!
BUT DON’T DELAY – a Protective Property Trust is less likely to be effective if it is delayed – once you have been diagnosed with an illness which may lead to a need for long term care, the Protective Property Trust is less likely to be effective for that partner – but still worth a try.
Call Allied Professional Will Writers Ltd on 0800 298 5208 or pop you details in the box below (we promise not to give them to anyone else)
Protect your children’s inheritance