Protective Property Trust
You can set up a Property Trust Will in order to hold your share in the property you own at the time of your passing in a trust for your children and other beneficiaries, while your surviving partner can continue to live in the property for the remainder of their lifetime.
One major benefit of a Property Trust Will is that it protects your property from being claimed by your partner’s new spouse in the event that they remarry or enter a civil partnership. This is because your share of the property is held within the trust and is not considered part of your partner’s estate. Therefore, your beneficiaries are guaranteed to receive their shares when the set conditions are met, even if your partner’s circumstances change. By setting up a Property Trust Will, you can ensure that your loved ones are well taken care of even after you’re gone.
A major concern for many people is that their home may be used to fund care costs in later life. This may happen if you have just made a simple mirror Will.
Most people own their property jointly as Beneficial Joint Tenants, meaning that the house will typically be passed on to their spouse after the first death, and to their children or chosen beneficiaries after the second death.
Considering that over 60% of British seniors do not have a written Will, most of the remaining 40% have a mirror Will, which is not enough to protect their homes if one spouse passes away and the other goes into care or re-marries.
The proof for this are the 40,000 homes that are being sold by the Local Authorities every year to cover care fees.
A Protective Property Trust (PPT) has to be created whilst both partners are alive, to ensure that Mr and Mrs will own 50% of the property each, known as ‘Tenants in Common’. This is will stop the property from ever going to unwanted beneficiaries.
Example 1.
HAVING ONLY A SIMPLE WILL IN PLACE AND OWNING THE HOUSE AS JOINT TENANTS
An older, married couple, Mr & Mrs Bloggs, are both in their 70s, live in England, and have one adult child. The house they live in is owned by them outright and is worth £150,000, and between them, they have life savings of £50,000, so total assets of £200,000.
Fortunately, they’ve written their Wills and want to keep things as simple as possible. Their standard Will’s both say that when one of them dies before the other, everything is passed directly to the surviving spouse. When the surviving spouse dies in the coming years, everything then passes to their adult child.
This is a very common scenario, and it’s not wrong – but it can complicate matters. Let’s look at what can happen.
Let’s say that, one day, Mr Bloggs dies. In accordance with his Will, his entire estate (money, possessions, and property) passes directly to Mrs Bloggs. She then has all the assets transferred into her name, including the family home, which means she now has total assets amounting to £200,000 in her name.
Several years later, Mrs Bloggs becomes frail, with health issues that mean she shouldn’t live alone anymore. One day, she falls, which leaves her unable to look after herself or her home properly. With no full-time care available from the adult child, it means Mrs Bloggs has to find residential care accommodation.
Normal procedures mean that Mrs Bloggs has her needs and finances assessed by her local council to determine whether she can pay for her residential care. Because she has more than £23,250 in her name, her care costs do need to be paid by her. The cost of the care home is £30,000 per year, and she stays there for 5 years, meaning her total care fees come to £150,000.
With her total assets of £200,000 now reduced to £50,000, it means the adult child would now inherit that £50,000 only.
This is a very common scenario in marriages and civil partnerships. But, many older couples now realise that they might need residential care in the future and will look to protect the value of their jointly owned family home so it can be passed to their children in its entirety. This is done by creating a Property Trust Will that ensures half of the home and its value cannot be touched when the first spouse or civil partner dies.
The Property Trust Will ensures the surviving spouse or civil partner can live in the property as normal for the rest of their life, but they’ll only own their half while the other half sits in trust. Should residential care become an issue for the surviving partner in the future, only the property half owned by them will be taken into account when assessed by the council, not the half that’s in Trust.
Example 2.
HAVING A PROTECTIVE PROPERTY WILL IN PLACE
Let’s go back to Mr & Mrs Bloggs. So, they still have total assets worth £200,000 (£150,000 on their house and £50,000 in joint savings), but let’s see how their scenario would play out with a Property Trust Will in place.
When Mr Bloggs dies, as per the instructions in his Will, his half of the property transfers into the Property Trust. The remaining assets in his estate pass on to Mrs Bloggs as normal, and she can continue living in the property for as long as she wants. Along with the assets she receives from Mr Bloggs estate, Mrs Bloggs day-to-day life continues very much as in example 1. But now, the Property Trust means:
The property can be sold if Mrs Bloggs wishes
Proceeds from any house sale can go into a new property if she wants to move
Over the coming years, Mrs Bloggs will become unable to live alone and need to move into a residential care home, meaning she’ll be assessed by her local council. The assessment will show that the house is still worth £150,000, but she only owns half of it as the other half is in trust. That equates to £75,000, and with her other assets valued at £50,000, she has a total of £125,000.
The cost of the care home is still £30,000 per year, and she stays there for 5 years, meaning her total care fees still come to £150,000. That means the value of Mrs Bloggs overall estate dips below the £23,250 threshold after 4 years, and the council can then offer financial support. If and when those assets dip under £14,250, the council will provide maximum financial support.
When Mrs Bloggs dies, her estate can only be valued at £14,250. However, the value of the half of the house that’s in Property Trust remains unchanged and untouched by the care fees, so is still worth £75,000.
But now, rather than inheriting £50,000, the adult child would instead inherit £89,250. This is made up of Mrs Bloggs remaining £14,250 plus the £75,000 from the half of the house that’s in Property Trust.
Without a PPT
- Currently, anyone with assets above £23,250 (in England) or £50,000 (Wales) may not receive state help with care costs, meaning that families would have to sell their home to fund care.
- If you pass away and your partner goes into care, the Local Authorities will means-test 100% of the property and sell it to cover care costs. And with average care fees of £750 - £1000 per week, it does not take long to erode the value of your estate.
- If you pass away and your partner re-marries but then passes away also, your property will then be defaulted to someone else's children.
With a PPT
- After a Protective Property Trust is incorporated in a new will, and then a spouse passes away, their share of the property will be given to the chosen beneficiaries, most commonly those would be children or grandchildren.
- If the PPT is established whilst both partners are alive, 50% of the property value is automatically protected upon the first death, meaning that the authorities CANNOT sell the house to fund care costs for the survivor.
- The surviving spouse will also benefit from a 'right of occupancy', meaning that they can still live in the property for as long as they want.