At Pardoes Solicitors, we understand the importance of safeguarding your most valuable assets and ensuring your loved ones are well-protected for the future. One effective way to achieve this is through a Protective Property Trust (PPT). This legal arrangement is particularly useful for those wishing to secure their family home for future generations while accommodating a surviving spouse or partner.
Here, we explain what Protective Property Trusts are, how they work, and the benefits they provide.
What is a Protective Property Trust?
A Protective Property Trust is a provision within your Will that helps protect your share of your property after your death. It ensures that your portion of the property is held in trust for specific beneficiaries, such as your children, while allowing your spouse, partner, or another individual to live in the property during their lifetime.
This type of trust is especially beneficial in cases where there are concerns about potential care home fees, remarriage of the surviving partner, or financial vulnerabilities.
How Does a Protective Property Trust Work?
When you create a Protective Property Trust within your Will, you effectively split the ownership of your property. Here’s how it works:
Ownership Division:
- You and your partner (if applicable) own the property as Tenants in Common. This means each of you owns a distinct share of the property, often 50%.
Placing Your Share in Trust:
- Upon your death, your share of the property is placed into the trust.
- The trust specifies beneficiaries (often your children) who will inherit your share after the trust ends.
Lifetime Occupation:
- The trust allows the surviving partner or another named individual (the “life tenant”) to live in the property for as long as they need.
- They may also have the right to move to a new property, provided the value remains within the terms of the trust.
Trustees and Their Role:
- Trustees, appointed in your Will, manage the trust. They ensure the terms of the trust are followed and the beneficiaries’ interests are protected.
Whose who?
The life tenant is the individual entitled to occupy or benefit from the property during their lifetime. Typically, this is the surviving spouse or partner.
The remaindermen are the ultimate beneficiaries of the trust, such as children or grandchildren, who inherit the property when the trust ends.
Taxation and Protective Property Trusts
While Protective Property Trusts provide significant benefits, they also come with potential tax implications:
Inheritance Tax (IHT):
- A Protective Property Trust creates what is known as an Immediate Post-Death Interest (IPDI). This means that the value of the deceased’s share of the property aggregates with the life tenant’s estate for IHT purposes and will form part of the life tenants estate. However, exemptions and reliefs may apply at that time.
Capital Gains Tax (CGT):
- If the property is sold while in the trust, any increase in value may be subject to CGT. Trustees should seek professional advice to manage this.
Probate and Trust Registration:
- A Protective Property Trust may necessitate obtaining Probate for the deceased’s estate. Additionally, the trust must be registered with the Trust Registration Service (TRS), ensuring compliance with HMRC regulations.
Downsides for Unmarried Couples
For unmarried couples, Protective Property Trusts can present unique challenges:
No Spousal Exemption:
- Unlike married couples or civil partners, unmarried partners do not benefit from the spousal exemption for IHT, potentially increasing the tax burden on the estate.
Lack of Automatic Rights:
- Without marriage or a civil partnership, an unmarried partner’s rights to occupy the property or benefit from the trust must be explicitly stated in the Will.
Scenarios
Scenario 1: A Dies and B Goes into Care
- A’s share of the property (valued at £250,000) is placed into a Protective Property Trust.
- B, the life tenant, continues to live in the property. If B later moves into residential care, A’s share is protected from being used to pay care home fees.
Scenario 2: A Dies, B Remarries, and the House is Valued at £500,000
- After A’s death, B remarries. Without a Protective Property Trust, there’s a risk that the property could pass to B’s new spouse instead of A’s children.
- With the trust in place, A’s share remains protected for their chosen beneficiaries.
Flexibility of a Protective Property Trust
Termination on Remarriage or Cohabitation:
- The trust can be brought to an end if the life tenant remarries or begins cohabiting, depending on the terms of the trust.
Downsizing and Access to Surplus Funds:
- The life tenant can move to a smaller property, with the approval of the trustees.
- If there are surplus funds from the sale of the property, the trustees may allow the life tenant to access these, provided it aligns with the terms of the trust.
Including a Protective Property Trust Post-Death with a Deed of Variation
It is possible to include a Protective Property Trust after someone’s death by using a Deed of Variation. This legal document allows beneficiaries to alter the terms of the Will to include provisions such as a PPT. Key points to consider:
- All affected beneficiaries must agree to the changes.
- The Deed must be completed within two years of the date of death.
- Professional advice is essential to ensure the changes are legally valid and tax-efficient.
Benefits of a Protective Property Trust
Safeguarding Inheritance:
- A PPT ensures your share of the property is preserved for your chosen beneficiaries, such as your children or grandchildren, regardless of future circumstances.
Protection Against Care Home Fees:
- If your surviving partner requires residential care in the future, the share of the property held in trust is typically protected from being used to pay for care fees.
Guarding Against Remarriage:
- If your surviving partner remarries, the trust prevents your share of the property from being inherited by someone outside your chosen beneficiaries.
Flexibility for the Life Tenant:
- The life tenant retains the right to live in the property or move to a new one, ensuring their security and comfort.
- They can also access surplus funds if available, at the trustees’ discretion.
Control and Certainty:
- By setting clear terms in your Will, you maintain control over how your assets are distributed and ensure your wishes are carried out.
Is a Protective Property Trust Right for You?
A PPT is ideal if:
- You want to protect your share of the family home for your children or other beneficiaries.
- You are concerned about the impact of care home fees on your estate.
- You wish to prevent your share of the property from being passed outside your family in the event of remarriage.
- You want to provide security for your surviving partner while preserving an inheritance for others.
Why Choose Pardoes Solicitors?
At Pardoes Solicitors, our professional and caring Private Client Team specialises in estate planning solutions tailored to your unique circumstances. We offer:
Expert advice on setting up Protective Property Trusts.
Clear, jargon-free guidance every step of the way.
Fixed fees from the outset, so there are no surprises.
Start protecting what matters most today.
Call us on 01278 457 891
Visit: www.pardoes.co.uk
Let Pardoes Solicitors help you secure your family’s future.
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