What is a Protective Property Trust - should I have one in my Will?
Often your property is the most valuable thing you own. A Protective Property Trust is a common tool used in Will writing primarily to protect your share of your property and ensure it is ultimately inherited by the people you choose.
Protective Property Trusts work when a couple own their home in individual shares (known as ‘Tenants in Common’) and the first of the couple to die puts their share of property in trust via their Will. The trust will give their surviving partner a life interest in their share of the property, which means they have the legal right to remain living in the property throughout their lifetime and can continue enjoying the house as if it is they were the sole owner. On the death of their surviving partner the trust would come to an end and the share of the property which belonged to their deceased partner would then pass to the beneficiaries stated in their Will, regardless of what might be in the Will of the second person to die.
Protective Property Trusts working in this way can have many benefits and can help prevent things like sideways disinheritance or the loss of property to pay any creditors or care fees of the surviving partner. It may be the right solution for second marriages where both partners have children from previous relationships who they would wish to inherit their share of the house, but where they also want to ensure that their partner is able to continue living in the property if they died first.
Unlike some planning tools you do not have to be married or in a Civil Partnership to benefit from Protective Property Trusts. If you are co-habiting with your partner and own a proportion of your property this could still work for you.
If you are planning on including a Protective Property Trust in your Will you need to ensure that you own your property as ‘Tenants in Common’ rather than ‘Joint Tenants’. If you are preparing your Will through a professional, they should be able to check this for you at the Land Registry. Tenants in Common means that you will own a certain share of your property each, commonly this would be 50/50 but it could be in any proportions. Owning a certain share means that you can leave this in your Will to specific beneficiaries or into a trust, which can benefit your partner during their lifetime and then pass to your chosen beneficiaries after their death.
If you own your property as Joint Tenants, this means that you would both own the whole of the property together and you will not hold individual shares. On the first death the property would pass automatically to the surviving partner, regardless of what might be written in the deceased partner’s Will. The property will then be solely owned by the survivor and distributed on their death under the terms of their Will at the time. If your partner moves on after your death, this could mean that their new partner or their new partner’s family could ultimately inherit the house – this is known as sideways disinheritance. A Protective Property Trust would prevent this from happening since your share of the property would be safeguarded in trust for your beneficiaries.
If you own your home as Joint Tenants, it is possible to change this and sever your joint tenancy to become Tenants in Common. This is a straightforward process and can be completed at the Land Registry relatively quickly.
Reassuringly, Property Protection trusts are Inheritance Tax neutral and if you are married or in a Civil Partnership and you are ultimately leaving your share of property to children, stepchildren or other lineal descendants, your estate will still be able to utilise the Residential Nil Rate Band.
The Residential Nil Rate Band is an additional Inheritance Tax allowance which currently provides an extra Inheritance Tax free allowance where the deceased owned a property and is leaving this to their lineal descendants. Altogether with the other Inheritance Tax allowances available to married couples and Civil Partners this could make a combined Inheritance Tax allowance of up to 1 million pounds.
A protective Property Trust must be set up on death by the executors and trustees appointed in the Will and this should be managed during the lifetime of the trust by your appointed trustees. It is important that the trust is set up and managed correctly to be effective and that it is dismantled once the trust comes to an end. Your trustees may want to get professional advice on setting up, managing the trust and dismantling the trust when the time comes. Although it may seem like there will be more work to do after your death the benefits of safeguarding your property often outweigh any additional work which might be required.
It is always important to obtain professional legal advice before setting up any trusts in your Will to ensure that you are comfortable and that this is right solution for you in your individual circumstances.