Property Protection Trust Will

A Property Protection (Lifetime Interest) Trust Will can be very useful and, in certain situations, is essential if problems are to be avoided. Basically it guarantees that an individual’s share of the family home will not be lost if their surviving spouse re-marries or encounters financial difficulties or needs residential care in the future.

It can also be useful in other situations where one wishes to provide a home for a third-party to live for a specific period of time – or for their lifetime – while regulating what happens afterwards. Property Protection Trusts are used in various circumstances and the trust terms varied accordingly.

Re-Marriage by a surviving spouse can, potentially, cause problems. Firstly, a re-marriage revokes ANY Will; even one being relied on to safeguard the interests of children or other beneficiaries. A typical situation would be where a couple make a Will leaving everything to each other and, on second death, to their children. When one of them dies the survivor becomes the legal owner of the entire estate.

If the survivor remarries then their Will (which provided that everything would go to the children) is automatically revoked and is no longer a valid legal document. So, inadvertently, the family home could be lost to a new husband or wife and subsequently pass to their family. Even where it is intended that the surviving spouse will make a new Will this is, in practice, often delayed through procrastination or the difficulty of engineering a suitable Will without insinuating mistrust of the new spouse.

Nor can the surviving spouse safely co-habit as the law now makes it easier for their new partner to claim against their estate. However, any such claim can only be against the surviving spouse’s estate. A new spouse would have no claim against assets that remained part of the estate of a previous spouse and this presents an opportunity.

Property Protection Trust Wills: If the deceased spouse’s share of the home is already in trust for children, or other beneficiaries (and therefore not part of the surviving spouse’s estate), then no new spouse or partner can possibly claim against that share.

A Property Protection Trust Will ensures that a deceased spouse’s share of a property will definitely pass to their beneficiaries while also protecting the security of the surviving spouse. Such arrangements can bring great peace of mind to all concerned.

The Care In The Community Act 1990 gives the local authority the power to make individuals financially responsible for residential or nursing home fees, while those who do not own homes may receive the same care free of charge.

The frustration that people feel over their family losing their inheritance to subsidise those who have no assets for the authorities to plunder has turned into a feeling of outrage. Every year thousands of homes are sold in this way. By planning ahead now the Property Protection Trust will help you protect your property against the ‘Care In The Community Act’.

Where the home is owned as Beneficial Joint Tenants it will be necessary to adjust this with HM Land Registry, so that each party owns an individual share as Tenants in Common (this is all part of the service and no additional charge is made). The Wills are then prepared to ensure that when one spouse dies, his or her share of the property is placed into the Trust.

Protection Of The Surviving Spouse: The surviving spouse is normally given the right to enjoy the home for as long as they live – or until they remarry or co-habit if that is more appropriate to the circumstances, but normally it will be a full “life interest”. As Principal Trustee, they will normally be given the freedom to sell the property and purchase another to be held subject to the same Trust conditions.

This is a brief outline of how a Property Protection Trust works. When one compares the average premium paid every year to insure a property to the ONE OFF fee charged to protect the home in this way one can see that it could be money well spent.

Some Practical Considerations

  • Under the Trust the surviving spouse has an absolute right of residence. They cannot be pressured into selling the home however, the beneficiaries’ future interest is established so everyone is safeguarded.
  • The surviving spouse may, through the Trustees (The spouse is usually Principal Trustee), sell the property and apply the proceeds of sale for the purchase of another property to be held subject to the same terms, so they could downsize, move closer to children etc. They cannot sell the property and use the entire proceeds of sale as their own, however, a property worth, say, £250,000 of which £125,000 is held by the Trustees, could be sold and a property purchased for £125,000 using the value held by the Trustees and providing £125,000 cash for the survivor.
  • The Will makes it clear that it refers to any home which is the main or only residence at first death so the Will does not have to be changed regardless of how many times you move home.

Some people consider protecting the family home by gifting it to their children, on the understanding that ‘Mum’ will continue to live there. There are however huge pitfalls with this approach:

  • As part of the children’s assets, it could be lost in the event of their divorce, death, debt or bankruptcy. Other risks are:
  • As the property is not the ‘principle private residence’ of anyone to whom the property is gifted, Capital Gains Tax may be incurred.
  • Revenue and Customs may consider the new owners to be Landlords of the property and Tax them accordingly, on what they consider to be a fair rent, even though no rent is actually paid
  • The Care in the Community Act 1990 gives the local Authority the right to consider the gift “Deliberate Deprivation of Assets” and recover it to pay for Care Fees