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If you’re wanting to secure your assets, putting property into a Trust is a fantastic start. You’re locking it away from greedy hands, making sure it’s protected for whoever you want it to go to. Making a Will is alright in a lot of cases, but sometimes you need that extra protection. That’s where Trusts come in, and here’s how a Property Protection Trust can help you.
(Very) Brief overview of Trusts
This is just going to be a brief overview. A Trust is basically a way of locking away your assets and making sure they go exactly where you want them to go. You build them into Wills to give added security to your assets – they can help guard against stuff like tax and sideways inheritance.
There’s 3 main components in the setting up of a Trust:
- The Testator, who puts their assets in the Trust
- The Trustees, who look after the Trust and carry out the Testator’s wishes
- The Beneficiaries, who are the recipients of the assets.
Trustees and Beneficiaries aren’t mutually exclusive – the same person can be both, but it’s not really advisable ‘cos then there could be a massive conflict of interest. There’s loads of different types of Trusts, some really complex, but since this article’s specifically about Property Protection Trusts, that’s more or less all you need to know for now. Told you it was quick. Just call me Speedy Deczalés.
What’s a Property Protection Trust?
A Property Protection Trust is a Trust you set up to protect your property. The name might be a bit of a giveaway, to be fair. It’s set up between people who own shares of the same property. When one dies, their share is locked away in the Trust but the surviving partner can carry on living in the home as a life tenant – either until they die or they remarry (depends how generous or petty they were feeling when they set the Trust up, I suppose).
If the survivor needs long term care, the authorities can only take into account their share of the property when they’re working out care fees. Since the other share’s locked in the Trust, it’s not classed as part of their assets. It belongs to the Trust, and passes on to the Beneficiaries. The authorities don’t really like this, and you can’t set up a Property Protection Trust with the sole reason of avoiding care fees, but it’s definitely good to know. I’ll give you a bit more information about this later.
Why not just give my partner 100%?
It’s simpler, but it’s also a million times more risky. You never know what’s going to happen in the future. And when you’re dead, you’re dead. Nothing you can do about it then, unless you’re a zombie. But then you’d be more interested in brains than inheritance, anyway.
Say you’re married with a child. You’ve sorted a legally binding, Bespoke Will at Vital Documents. You’ve left your partner everything you own – they’ll need it to help look after your kid, and it’ll pass down to the kid eventually, won’t it?
Unfortunately, you pop your clogs. Uh oh. Not to worry though, you sorted everything out and your partner’s inherited 100% of your assets. You know your kid’s gonna be alright. So far, so good. Time passes and your partner remarries. Fair enough.
But, you don’t know how much money your partner will leave their new spouse. Or, if your partner dies without a valid Will, the rules of intestacy take over. The new spouse automatically inherits the first £322,000 of your partner’s assets, plus 50% of anything above that amount. If the assets were valued less than that, your kid wouldn’t even get a sniff. If the value was over, your kid would only inherit half of the amount exceeding £322k. If there’s any other kids on the scene, they’d have to share it equally with them, too.
So if you’d left your partner £200k, and they’d saved £150k of their own, they’d have £350k total assets. If your partner dies intestate, the new spouse would get £336k of that (£322k + plus half of the £28k left over) – leaving your kid (at most) a measly £14,000 out of your £200,000 contribution. Oof.
It’s not fair, is it? Not at all. Imagine you’re a ghost having to see your kid lose their inheritance to someone you don’t know. Raging. Fuming. Haunting everyone I saw. But if you set up a Property Protection Trust, you know that at least 50% of the value of the property is guaranteed to go to your kid. It’s safe in the Trust and you know it’s going directly to your kid. No sideways inheritance, no worries, no headache for Derek Acorah.
Care home fees
I touched on this earlier – a handy little by-product of Property Protection Trusts is that they protect against care home fees. If you’ve got a Property Protection Trust in place and the surviving partner needs to move into a care home, the authorities can only take into account their 50% share of the house when they’re calculating the cost of fees. The shares in the Trust are safe. They aren’t taken into account. They’ll only ever pass on to the Beneficiaries.
While this is good to know, you can’t set up a Property Protection Trust if you’re only doing it to get out of paying care home fees. Not allowed. It’d be ruled as ‘Deliberate Deprivation of Assets’ – and then the local council or authority might just include the full 100% value of your house in their cost calculations anyway.
But how would they know? They aren’t mind readers, and they can’t just assume everyone’s guilty. No – they’d look into the circumstances of when you set the Trust up. If you or your partner had just found out you were ill, or it was looking likely that one of you would need care in the future, that’s going to look suspicious. If you were both in good health with no reason to believe either of you would need future care, you’re all gonna be all good.
How do I set one up?
First things first you’ll need to be tenants in common – not joint tenants. If you are joint tenants, you can just ‘sever the joint tenancy‘, so don’t worry about that. It’s a piece of cake to do, too – just send that form off to the Land Registry. As soon as they’ve got it, you’re good to go. Get in touch with a specialist here at Vital Documents to see how you can get started.
How could a putting property into a Trust help me?
It’s mainly useful for couples with kids who want to protect and look after each other but make sure the kids are the ultimate beneficiaries. So pretty much any couple with kids ever, basically. It’s not exclusive to couples with kids, though. You know your own circumstances. If it sounds like something you’d find helpful, get in touch with us and we’ll give you some advice.
With a Property Protection Trust, you kill two birds with one stone – you make sure your partner can continue living in the house, but you also make sure that your beneficiaries are guaranteed to inherit your share of the property.
I’ll use a case study to explain. More relatable. Say there’s a couple called Kim and Tim. They’ve got a kid called Jim. They’re all slightly deaf so their household is a bit of a slapstick comedy sketch. Kim and Tim own a house as joint tenants but they decide they want to set up a Property Protection Trust. They sever the tenancy, become tenants in common (each with a 50% share of the property) and write their Wills, with Property Protection Trusts built in, at Vital Documents.
Years pass, and one day Tim croaks it. The Trust, now he’s died, comes into effect. Tim’s 50% ownership of the property is locked away in the Property Protection Trust – no one can touch it. Kim, meanwhile, gets to carry on living in the property as a life tenant. It’s hers until she dies. It’s a pretty sweet deal for her.
More years pass and Kim’s health takes a turn for the worse. She can’t really look after herself anymore – she needs to go into care. When the authorities calculate the cost of her care home fees, because of the Trust, they can’t take into account the full value of the house – only Kim’s 50% share. As a result, she doesn’t have to pay as much towards her care fees. Kim moves into a care home and, between them, Kim and Jim agree to sell the house. Jim inherits the full 50% share his dad left him. Everyone lives happily ever after.
In setting up the Property Protection Trust, Kim and Tim made sure they protected each other for life, but also provided for Jim. Perfect.
If you think a Property Protection Trust might help you, or you want any advice on the matter, please feel free to get in touch with one of our specialists – we’re more than happy to help! Visit our site, or book a time that suits you and we’ll give you a call – just click below!