Property Trusts Explained
2 May 2019 by Sarah Rankin
What is a Property Protection Trust Will?
A property protection trust will is a will created to protect a share of the family home from either long term care fees or remarriage (as well as subsequent change of Will and redirection of assets).
Actually the term ‘Property Protection Trust’ does not exist in law and in fact, a trust is drafted in the Will which passes their share of the property to the ‘Trustees’ (who will be the legal owners of the asset) that hold the share of the property for ‘Beneficiaries’ (the people who are to benefit from the trust). In the Will the surviving co-owner of the property (usually a registered legal partner) will be granted ‘a life interest’ and right of occupation in the property which means they can benefit from living in the property (or from receiving an income from it) for the remainder of their lifetime. On the survivor’s death, the share of the property passes to the beneficiaries named in the Will (usually the children).
Mr. and Mrs. Blog own their property in joint names and have other savings. They want to ensure that their respective half shares of the property ultimately pass to their children. Whilst also ensuring that the survivor of them can continue living in the house for the rest of their life. They would like to make sure that at least half of the house is protected for their children if the survivor of them needs to go into long term care.
Mr. Blog dies first and leaves his half share of the property in his Will in trust; giving Mrs. Blog a life interest in the property and a right to occupy it. She also has a right to move house using the share held in trust. If Mrs. Blog then needs to move into long term care, Mr. Blog’s share of the property is in a trust. It therefore cannot be assessed as capital available to pay for Mrs. Blog’s care fees.
If Mr. and Mrs. Blog’s children divorce, die or go bankrupt, Mrs Blog’s occupation in the home is secured. Also, if Mrs. Blog enters another relationship, Mr. Blog’s share of the house cannot be redirected in a new Will by Mrs. Blog to a new partner or indeed, his/her children.
On Mrs. Blog’s death, the property is sold. The trust comes to an end and the half share of the house is transferred to the children; or sold and the proceeds distributed to the children.
Who is a Property Trust Will suitable for?
If you own your property jointly and you are in a couple and are concerned that either of you will need long term care in the future, or you have children from a previous relationship you want to ensure will benefit from your estate.
What happens to the legal ownership of the property?
We may need to change the way you hold the property from Joint Tenants to Tenants In Common so that you do own a respective share to leave in your Will. During your lifetime, you still own your property as Joint owners and the trust does not have an effect until the first of you dies. It will be on the first death that the trust will come into force – ring-fencing the share of the property.
At this time, the legal title of the share in trust should be transferred into the trustees’ names (this can be the surviving partner as well as someone else, and are usually the executors named in the Will).
What if the survivor wants to move house?
This is fine. If you want each other to use your respective shares to buy another property, we can draft this into the terms of the trust. You will also need to let us know what you want to happen to any money left over from downsizing.
Can the Trustees ‘throw out’ the surviving partner?
Although the trustees are the legal owners of your share of the property and control the trust – the Will is the trust deed and there is a right of occupation in the Will so the survivor has a right to stay there – by virtue of the trust and by the ownership of their own share. So the trustees cannot throw the survivor out of the house.
What happens if the survivor needs to go into care?
When the local authority does a financial assessment only the survivor’s share of the property can be included as the other’s share is owned by the trust. The half owned by the surviving spouse may be subject to assessment and if the property is sold used to pay for the care fees. The other half is protected in trust for the beneficiaries.
Will this effect estate for inheritance tax?
There are no inheritance tax implications. If you are married or in a civil partnership, the second of you to die will still benefit from any unused transferable nil rate band from the first. The value of the property is aggregated with the estate of the second of you to die.
Can I just give my house to my children?
We get asked this a lot. Although it may look easier, it puts you at risk. Your house is probably the most valuable asset in your estate and giving it away makes you vulnerable. Your children may go bankrupt, or divorce, or even fall out with you and demand the house is sold so they can have the cash. In these situations your house is a risk – potentially making you homeless. We can never know what will happen in the future.
If you think you will release equity in the future, Equity Release companies will not lend on your property. This is because the whole value of the property is not available to them to secure their loan.
Furthermore, if after the death of your partner you want to sell the house and use the whole of the equity (rather than just your half) to go travelling or move country, or even to spend all of it on your care fees, then this will not be available to you as it will be in the trust. It is no longer your capital.
However, things change. Local authorities are more likely to scrutinise schemes that lead to a “deprivation of assets”, for someone who needs care. If it is clear that the motive for creating the trust was to avoid paying care fees, and, at the time the will was written it was likely that survivor would need care, then a local authority can look through the trust and take into account the property/assets in their financial assessment.
What if I change my mind?
This trust is not formed/created until the first of you dies; so at any point before this you can change your Will.
What do I need to do?
Call us to make an appointment with our Wills, Life Planning and Probate Specialists, who can take you through the process. You may already have a Will in place, but this new Will will revoke the old one. We would take your instructions and prepare a draft Will (with the property trust as a clause within) for you to look at and check at home. Both of you will leave your share of the property in trust with a life interest to each other in your Wills.
You would then come in and sign your Wills (or we can come to you on a free home visit). Once signed, we hold your Wills free of charge and send you a copy for you to keep at home.
How much does it cost?
The costs of your Wills, at the time of writing, would be £350 plus VAT for mirror Wills.
If you currently own your property as Joint tenants, we will need to sever that joint tenancy so that you own respective shares in the property. This is to ensure your share passes through your Will, rather than by automatic survivorship. This would be a small additional fixed fee as your title deeds will need amending with the Land Registry.
For further information on Property Protection Trusts and your Will, please call Fisher Jones Greenwood on: 01206 700113 or email [email protected].