PROTECTIVE PROPERTY TRUSTS
The Trust creates rights for the surviving spouse or chosen life tenant during their lifetime.
The share of the property held in Trust is not assessed as an asset of the surviving spouse.
The Trust is an interest in possession Trust and is not taxed as part of the relevant property regime.
A Protective Property Trust (PPT) is designed to provide a right of occupation and income whilst protecting the capital for your chosen beneficiaries. The person who is granted these rights is known as the Life Tenant.
PPTs are commonly used in Wills where a couple are co-owners of a property and wish to ensure that the surviving co-owner has full use and enjoyment of the Trust asset.
A PPT WILL
Provide you with peace of mind that your chosen beneficiaries will inherit your share of the property by providing you with control over the eventual distribution.
Protect from sideways disinheritance. This occurs where a surviving co-owner forms a new relationship and changes their Will in favour of the new partner and any stepchildren.
Protect the Trust asset from third party creditors for means testing. The Life Tenant is not deemed to own the asset in Trust and it is therefore useful in cases of divorce, bankruptcy and local authority assessment.
Provide flexibility for the Life Tenant by allowing them to purchase a new property and attach the protection of the Trust to that property.
Be efficient for Inheritance Tax purposes for spouses as a Trust asset is treated as passing directly to the Life Tenant which therefore qualifies for spousal exemption.
A PPT EXAMPLE
Bill and Jane are married. Bill has two children from a previous marriage who he wants to benefit from his estate whilst also ensuring that Jane is adequately provided for. On Bill’s death, the PPT in his Will provides Jane with a roof over her head whilst preserving the capital for his two children. This ensures that the property is not means tested as part of Jane’s own capital.
What if Jane wants to move?
Following Bill’s death, Jane feels the house is now too big and would like to downsize. The PPT provides Jane with the flexibility to move to a smaller property more suited to her needs whilst continuing to protect the capital for Bill’s two children. Bill’s share of any excess capital can be invested to provide Jane with an income for the remainder of her life.
IS A PPT FOR ME?
Although a PPT is effective in preserving capital for future beneficiaries, it doesn’t allow for the Life Tenant to access the capital, should they face future financial hardship. In such circumstances, a Flexible Life Interest Trust (FLIT) would be a more favourable option.
For further information on the use of Protective Property Trusts in your Will, please contact us.