Sara Parascandolo
Solicitor
Phone: 0113 200 7480
Email: Info@averywalters.com
Our Will specialist's guide to Protective Property Trust Wills
These types of Wills are very popular with couples who wish to direct their 50% of residential property to particular beneficiaries or protect their 50% share of the property from third party claims.
These types of Wills can be very effective and are straightforward to put in place.
See our Will writing process here.
What is a Protective Property Trust Will/Life Interest Trust Will?
These types of trust Wills allow you to protect your share (usually 50%) of the residential property from being potentially used to settle care home fees, divorce settlements or bankruptcy petitions of the survivor/joint owner of the property. This is usually your spouse, civil partner or cohabitee.
How is this done?
How is this done?
This can be achieved by doing two things:-
1. Severing your joint tenancy of your property at the land registry so that each party owns a set 50% share of the property. At the land registry the property would then be held as ‘tenants in common’.
2. Preparing a Will containing a trust leaving your share of the property to the trustees named in your Will, with the proviso that your spouse/civil partner/cohabitee can continue to live in the property for the rest of their life or other timescale. The right to live in the property could also end if your spouse/civil partner/cohabitee moved out permanently after a set amount of time, remarried/entered into a civil partnership or cohabited romantically with another person.
The survivor would only have the right to live in your share of the property and therefore if they went into care, remarried and later divorced or suffered financial difficulty, only their 50% could be used to settle these claims. Your 50% share would be held in trust for your ultimate beneficiaries which could be children from your first marriage, shared children or other named beneficiaries.
What does the survivor need to do?
The survivor would be entitled to live in the property free of rent but would need to continue to pay the usual outgoings in respect of the property such as council tax and utilities and would need to keep the property insured and good repair and condition.
Can the survivor move?
The survivor could be given the ability to sell the property after the first person has died with the assistance of the trustees. Any new property purchased would be held under the same terms and any surplus sales proceeds would be given 50% to the survivor (in respect of their share) and 50% to the ultimate beneficiaries of the your Will.
If you do not wish the survivor to be able to move, then if they desire to move, the property would need to be sold and the survivor would take their 50% of the proceeds and your beneficiaries could receive their 50% share and go their separate ways.
Is the survivor protected?
As the survivor has been given the right to live in your 50% of the property their right to live in the property is protected. The survivor cannot be asked to leave by the ultimate beneficiaries unless the survivor breaches the terms of the trust.
Whilst the survivor is living in the property, they trustees are not allowed to mortgage, lease, sell or otherwise charge or dispose of the property without the survivor’s consent.
What if I move house after preparing my Will?
These types of trust Wills can apply to your residential property at the time of death rather than just the property you live in at the time you make your Wills, so you are free to move etc in your lifetime.
The trust will only come into existence on the death of the first person, so you are also free to amend your Wills at any time to remove the trust if you decide this is not what you want after all.
Do we have to change our ownership of the property at the Land Registry?
If you do not change your ownership at the land registry to tenants in common, then the Wills will not be effective.
This is because the property will pass automatically to the survivor by operation of the ‘doctrine of survivorship’ which means they will own the whole property and can do whatever they like with it.
Therefore, it is important that your ownership is checked and amended where necessary to ensure that your Wills and wishes will be effetive.
Are these Wills trusts tax efficient?
These types of Will trusts can be tax efficient for inheritance tax purposes if the life tenant is a spouse of civil partner.
Any capital gains or income is also treated as belonging to the life tenant
Are there any downsides to doing this?
As with many estate planning measures there can be unintended consequences which you need to be aware and informed of so you can decide whether these trust Wills are the right way forward for you.
• If you have a high-net-worth estate with lots of liquid assets it is likely that this type of arrangement will be less beneficial to you as you will have other funds available to be used up in the settlement of third-party claims if left to your spouse/civil partner or cohabitee.
• If you change your ownership to tenants in common at the land registry, it is likely that a Grant of Representation will be needed to deal with the first to die’s estate which might not otherwise have been required.
• As a trust is created, there will be matters to deal with after the death of the first person, such as trust registration, trust management and administration and possible tax implications for inheritance tax, income tax and capital gains tax purposes.
We can discuss with you whether this option is right for you and the pros and cons as applicable to your circumstances.
Can the trust be brought to an end in any other circumstances?
The trust could be ended by agreement by all beneficiaries (the life tenant/ultimate beneficiaries) or by the life tenant in their lifetime.
These actions could have implications for inheritance tax and other taxes so if please contact us for specialist advice.
Will Writing Made Easy
At Powell Eddison our team of Harrogate based specialists can provide pragmatic and cost-effective advice about Will writing.
Contact us on 01423 564551 or email us on info@powell-eddison.co.uk to arrange your free initial, no obligation consultation with a specialist.
