Creating a property protection trust (also known as an asset protection trust, a family protection trust, or a property preservation trust) in your will allows someone to profit from your inheritance after you die as if he or she possessed the assets without really receiving them. We will discuss the processes of this property protection trust, the cost of establishing it, and its advantages and disadvantages.
What is the Definition of a Property Protection Trust?
This is a trust that you create in your will to allow the surviving spouse to continue living on your property while keeping the deceased’s share of the property separate.
As a result, others, most typically children and loved ones, can inherit following the death of the surviving husband. This is known as a “life interest trust,” but the term “protection property trust” is a marketing word.
What is a Trust?
A trust is a legal tool that can be used to separate the property owner from the person who benefits from the trust property. A ‘trustee’ is someone who has legal ownership of and authority over the property. A ‘beneficiary’ is someone who benefits from the asset. A trust is a legal arrangement in which a trustee or trustees manage assets on behalf of a beneficiary or beneficiaries.
What is a Property Protection Trust Will?
A property protection trust will is a type of will that is intended to shield your property against assessments and long-term care costs. The trust receives the half portion of the family house that belonged to the first individual to die. This sort of trust is also known as a ‘life interest trust’ in favour of the survivor, which indicates that the survivor can benefit from the trust’s part of the house during his or her lifetime. When they die, the trust fund is passed on to others, usually their offspring.
Who are the Beneficiaries of a Property Protection Trust?
Couples, particularly if one of them may require long-term care in the future.
This is especially true if one partner had children from a previous marriage and wants both children to benefit while also ensuring that their spouse can live in the family home.
The surviving partner who is allowed to continue residing in the property is referred to as the ‘life tenant.’
It is critical to note that the sole reason for establishing a property protection trust cannot be to prevent having to pay for care, as this is illegal.
Why would I want to set up a Property Protection Trust?
The advantage of a life interest trust is that the survivor can continue to live in the house until death, but at least half of the estate value is protected for the children to inherit.
This is useful if, following the death of one partner, their partner remarries, goes bankrupt, or there is a likelihood of them incurring care bills.
An example of how trust works
Mr. and Mrs. A establish a trust over their property, which is held in their joint names.
Mrs A’s half of the property is transferred to the protection trust if she dies before her husband. Her husband receives the remainder of the estate.
Mr A has the right to reside in the property, and if he needs long-term care, Mrs. A’s share of the property is already in the property protection trust.
As a result, because it does not belong to Mr A, it cannot be assessed as capital to pay his care fees.
The trust terminates upon Mr. A’s death, and Mrs A’s part of the estate falls to the beneficiaries without the beneficiaries having to pay capital gains tax.
How can I put the property in trust and include it in my will?
When you prepare a will as a couple, you might establish a private property trust to protect your assets. This is an excellent approach to thinking about putting property in trust.
Trust wills can be created online or with the assistance of a solicitor or a specialized financial advisor.
Do I need legal counsel to establish a trust?
Individuals should seek legal counsel before establishing a trust. Setting up a trust is a complicated process, so hiring a will and probate specialist will save you time and money. Furthermore, engaging a specialist will give you peace of mind that your wealth is being lawfully and successfully secured.
What is the Cost of a Property Protection Trust?
Because trust wills are complex legal instruments, you will need to set up the details of your trust with a solicitor or wills and probate agency.
Solicitors often charge a flat fee for their services, though the cost structure for the property protection trust will vary depending on the business you hire.
Depending on the intricacy of the life interest trust, this service will most likely cost you between £300 and £1,000 plus VAT.
This cost covers guidance on your unique situation and tailoring the parameters of the lifelong property protection trust to your requirements. It is usually more expensive to set up trust wills as a couple than as individuals.
What is the Operation of a Property Protection Trust?
Your property must be left to the property protection trust named in your will by both you and your partner. The surviving spouse will receive a share of the house on trust and will be able to continue living in the residence. The trust money then passes on to others, most typically the couple’s children, once they die.
What does the Trust imply for the Survivor?
The life tenant has the right to reside on the property for the rest of their lives until they die. The trustees of the property do not have the authority to evict them.
The life tenant can still sell the house if they desire, but any proceeds from the sale will be split equally between them and the beneficiaries. The surviving partner is normally one of the trustees, along with another individual who is most likely a family member. As a result, the surviving spouse will have authority over what happens to the trust.
What are the Advantages of a Property Protection Trust?
This form of trust has various advantages:
- You have control over what happens to your wealth and savings.
- You can ensure that your children receive a piece of the property even if your spouse remarries.
- The life tenant may continue to occupy the property.
- It protects a portion of the property from being lost if the life tenant requires long-term care, becomes bankrupt, or remarries.
- Only after death is a trust created. This means that individuals can do whatever they want with their assets while they are still alive.
What are the Disadvantages of a Property Protection Trust?
While these trusts are generally beneficial, there are a few disadvantages to consider:
- They are harder to establish, and the wills and trusts must be carefully worded to represent the intentions of the spouse.
- The cost of establishing the property protection trust, including the hire of a legal services firm.
- Unlike a lifetime trust, the trust does not pay you any income.
Possible Tax Ramifications:
Tax returns should not be required as long as no income goes to the life tenant. However, because the capital value can be included in the surviving spouse’s estate, extra inheritance tax may be due if the estate is worth more than a certain amount. The money may also be due if the couple is not married.
How can I Dissolve a Property Protection Trust?
The trust does not come into being until one of the partners dies. As a result, if you change your mind, you can simply amend your will.
Do the title deeds need to be changed in order to establish a Property Protection Trust?
As tenants in common, the family home must be in both your and your partner’s names. This implies that the trustees and the surviving spouse will share the title in the event of one of the partners’ deaths.
What are the Trustees’ names?
The people who control the trust and decide what happens to it are known as trustees. The trustees of a protection trust are often the survivor plus at least one other person. The survivor’s right to occupy the property must be maintained in the trust.
What happens to the Trust if the Surviving Spouse wants to relocate?
The family home can be sold and another residence purchased. If the new home is less expensive than the family home, the proceeds from the sale must be divided between the surviving spouse and the trustees.
What if the Survivor is forced to enter Residential Care?
If the surviving spouse enters full-time care, the local authorities will not look at any assets in the trust. When analysing the person’s resources and how much of their own care expenditures they will have to fund, they will only consider the surviving spouse’s half share.
Is it Legal to Set up a Property Protection Trust?
They are legal, but it is vital to understand that a protective property trust may not always perform as expected. Local authorities are more likely than ever before to investigate the assets of a life tenant to determine if there has been a “deprivation of assets” for someone in need of care.
If it is clear from the circumstances that the trust was established to avoid paying care fees, and when the trust was established, it was expected that the life interest beneficiary would require care, the local authority can use the assets when calculating means-testing.
Is it true that Establishing a Property Protection Trust does not count as Asset Deprivation?
The government and local governments strive to ensure that everyone pays the correct amount of tax and care facility costs. In circumstances where the Local Authority believes you shifted the interest in the assets on purpose to avoid paying care facility fees, they may petition the court to transfer property ownership to the spouse.
Whether or not this application is successful is determined by when the trust was established, particularly if the trust was established when the partner’s health indicated that care was anticipated. The court will exercise its discretion by taking into account all of the facts of the case. If you find yourself in this situation, you should seek legal advice.
What Additional Types of Trusts are there?
There are several different trusts that you might utilise, and they are all worth investigating to determine which one is likely to be the best fit for your circumstances. These are some examples:
#1. Family Protection Trust
A family protection trust is a legal alternative in which you have full access to the trust’s assets while you are alive, but you get to choose who inherits from the trust fund.
#2. Home Protection Trust
A home protection trust is a sort of trust that safeguards your legal right to live in your family’s home. A trust ensures that your home is passed on to your beneficiaries, who are generally your children.
#3. Inheritance Tax Planning Trust
An inheritance tax planning trust can assist you in determining what will happen to your wealth after you die. A trust can not only help decrease the inheritance tax that you and your beneficiaries will pay, but it can also be used to protect your assets and allow you freedom in how you manage your finances. However, it is prudent to seek legal counsel before establishing a trust.
#4. Asset Protection Trust
These are estate planning tools that ensure your assets go where you want them to go when you die. An asset protection trust is established during your lifetime, and assets in the trust are given to the beneficiaries as soon as you die.
Property Protection Trust FAQ’s
Who owns the property in a trust?
When the property is “kept in trust,” ownership is divided, “typically with the trustee holding legal title and the beneficiary holding equitable title.” The trust itself owns nothing because it is not a legal entity that may own property.
What happens to property in a trust after death?
The successor trustee is responsible for resolving a trust, which usually involves terminating it. When the trustor dies, the successor trustee assumes control, examines all of the trust’s assets, and begins distributing them in line with the trust. There is no need for legal action.
Can a house held in trust be sold?
The quick answer is yes. Unless the trust documents prohibit the sale, you should be able to. There are, however, other aspects to consider. The procedure is determined by the type of trust if the grantor is still alive, and who is selling the property.
