Property Protection Trusts are becoming an increasingly common subject when couples discuss their Wills.
The attraction is understandable.
You own a home.
You want your husband, wife or partner to remain secure if you die first.
But you would also like your share of the property eventually to reach your children or other chosen beneficiaries.
A Property Protection Trust contained within a Will can potentially help balance those two objectives.
However, trusts are not suitable for everybody.
At Your Will Writers, I believe clients should understand both the potential advantages and the limitations before deciding whether this type of planning is appropriate.
So let’s look at both sides.
What Is a Property Protection Trust?
A Property Protection Trust is commonly incorporated into Wills for couples who own a property.
Instead of the first person to die leaving their share of the property outright to the survivor, that share passes into a trust.
The surviving spouse or partner is usually given rights to continue occupying the property according to the trust terms.
Eventually, the protected share can pass to the beneficiaries selected by the person who died.
Often, these are children.
Advantage 1: Protecting Children’s Inheritance
This is one of the strongest reasons couples consider this arrangement.
If everything passes outright to the surviving spouse, they become the owner.
Their circumstances could subsequently change.
They might:
- Remarry
- Change their Will
- Fall out with a child
- Give assets away
- Experience financial problems
A Property Protection Trust can preserve the first person’s share for their chosen beneficiaries.
Advantage 2: Protection Against Sideways Disinheritance
Suppose you die first.
Everything passes to your spouse.
Your spouse later remarries.
Eventually, your original assets could pass into the new spouse’s family rather than to your children.
This is known as sideways disinheritance.
A Property Protection Trust can help reduce that risk because your share does not simply pass outright to your surviving spouse.
Advantage 3: Security for the Survivor
Protecting children should not mean leaving your spouse vulnerable.
The survivor can normally be given rights to remain living in the property.
Depending upon the terms, those rights may potentially last for life.
This can provide a useful balance between:
protecting the survivor now
and
protecting beneficiaries later.
Advantage 4: Greater Control
Once you leave an asset outright to somebody, you generally give up control over its ultimate destination.
A trust allows you to place conditions around how your share is dealt with.
For some people, that additional control provides valuable reassurance.
Advantage 5: Potential Relevance to Future Care
This is the benefit that attracts considerable attention.
Where the first spouse’s share passes legitimately into a Will trust following their death, that share does not simply belong outright to the survivor.
That distinction can potentially be relevant if the survivor later requires means-tested residential care.
However, this should never be described as guaranteed protection from care fees.
Care funding rules and individual circumstances matter.
Disadvantage 1: More Complexity
A basic Will leaving everything outright to a spouse is relatively straightforward.
A Will involving a trust is more complicated.
There will be:
- Trustees
- Trust terms
- Additional administration
- Potentially ongoing responsibilities
That complexity should have a genuine purpose.
There is little benefit in creating a trust somebody doesn’t need or understand.
Disadvantage 2: Trustees Have Responsibilities
Trustees cannot simply ignore the trust.
They are responsible for dealing with trust assets according to its terms and applicable law.
The people chosen therefore need to understand that this is a real responsibility.
Choosing appropriate trustees matters.
Disadvantage 3: The Survivor Doesn’t Simply Own Everything
This is both the benefit and a potential disadvantage.
The whole purpose of the trust is that the deceased person’s share does not pass outright to the survivor.
That means the survivor cannot necessarily treat the entire property as if it belonged solely to them.
The trust terms need to be followed.
Disadvantage 4: Moving House Can Require More Administration
The survivor may be able to move or downsize, depending upon the trust provisions.
But there can be more administration than if they simply owned 100% of the property outright.
Trustees may need to be involved.
The trust’s interest may need to be preserved in the replacement property or dealt with according to its terms.
Disadvantage 5: Tax and Legal Issues Can Arise
Trusts can have tax and legal consequences.
The precise outcome depends upon:
- The type of trust
- Assets involved
- Beneficiaries
- Trust terms
- What happens subsequently
This is why trusts should not be inserted into Wills casually.
The Care Fee Question
Many enquiries begin with:
“Can this stop the council taking my house?”
I would approach that question very carefully.
There are circumstances where a person’s property may be relevant to a care-fee assessment.
There are also circumstances where property may be disregarded.
The rules are more nuanced than many advertisements suggest.
Deliberate Deprivation of Assets
Local authorities can consider whether somebody has deliberately deprived themselves of assets to reduce what they would otherwise be expected to contribute towards care.
This can involve looking at factors including the circumstances and motivation behind transactions.
That is why claims such as:
“Put your house into trust and you’ll never pay care fees”
should be treated with caution.
A Will Trust Is Different From Giving Away Your House Today
This distinction is important.
With a typical Property Protection Trust created through Wills, the trust comes into effect following the first death.
The deceased person’s share passes according to their Will.
That is different from somebody transferring their own home into a trust during their lifetime purely because they fear future care costs.
The two arrangements should not be confused.
Who Might Benefit?
A Property Protection Trust may be worth discussing where:
- You own a home with your spouse
- You want children eventually to inherit your share
- You have children from previous relationships
- Remarriage after the first death concerns you
- You want to preserve some control over your share
- You are considering wider estate protection
Who Might Not Need One?
A trust may provide little benefit where:
- The estate is very straightforward
- There are no children or other ultimate beneficiaries to protect
- Both spouses are completely comfortable with outright inheritance
- The additional complexity achieves no meaningful objective
The right answer depends upon the family.
Property Ownership Must Be Checked
For this planning to work properly, it is important to consider how the home is owned.
Property held as beneficial joint tenants normally passes automatically to the survivor.
Property held as tenants in common allows each owner to have a separate share capable of passing under their Will.
Property Protection Trust planning often therefore involves reviewing the ownership structure.
Property Protection Trusts in Wolverhampton
Your Will Writers helps homeowners throughout Wolverhampton, Codsall, Tettenhall, Perton, Wombourne and Brewood review their estate planning.
If you’re considering a Property Protection Trust, the starting point isn’t:
“How do we avoid care fees?”
It is:
“What are we trying to protect and who are we trying to protect it for?”
That produces a much better conversation.
Understand the Trade-Off
Trusts often involve a trade-off.
You gain greater protection and control.
In return, you accept some additional complexity.
For one family, that may be worthwhile.
For another, it may be unnecessary.
There is no universal answer.
The important thing is understanding both sides before deciding.
A Property Protection Trust should not be purchased because somebody frightened you about care fees.
It should be included because, after considering the advantages and disadvantages, it genuinely improves your family’s estate plan.
This article provides general information only. Trusts, taxation, property ownership and care funding can involve complex issues and individual circumstances should be considered.