Are you wondering how to ensure your family home stays within your family, even after you’re gone? A Protective Property Trust might be the answer you’re looking for. In this article, we’ll explore what these trusts are, how they work, and whether they could be beneficial for you.
What is a Protective Property Trust?
Also known as a property protection trust, asset protection trust, family protection trust, or property preservation trust, a Protective Property Trust is a legal arrangement designed to safeguard your property for future generations. It’s important to note that this is a Will trust, not a lifetime trust – meaning it takes effect after you pass away.
How Does It Work?
Let’s break it down step by step:
1. While you’re alive: You and your spouse transfer ownership of your home from joint tenants to tenants in common. This means you each own a distinct share of the property.
2. Setting up the trust: When you create your Will, you include provisions for a Protective Property Trust.
3. After your passing: Your share of the property goes into the trust, managed by trustees on behalf of your beneficiaries (often your life tenant, being your spouse, alongside your children).
4. Protection for your spouse: The trust allows your surviving spouse to continue living in the property for the rest of their life.
5. Distribution to beneficiaries: After your spouse passes away, the assets in the trust are distributed to your chosen beneficiaries.
A Real-Life Example: The Jones Family
Meet Mr. and Mrs. Jones, a couple who own their £300,000 house jointly and have £50,000 in savings. They want to ensure their children inherit at least half of the property’s value while protecting the surviving spouse’s right to live there. They’re also concerned about potential care home fees eating into their children’s inheritance.
Here’s how a Protective Property Trust could help:
1. Mr. and Mrs. Jones change their property ownership to tenants in common.
2. They each create a Will with a Protective Property Trust.
3. When Mr. Jones passes away, his £150,000 share of the property goes into the trust.
4. Mrs. Jones can continue living in the house.
5. If Mrs. Jones later needs care, only her £150,000 share of the property can be assessed for care fees. The £150,000 in the trust is protected.
6. After Mrs. Jones passes away, the children inherit at least £150,000 from the property, plus any increase in value.
Potential savings: If Mrs. Jones needed five years of care at £50,000 per year, the trust could protect up to £150,000 for the children’s inheritance.
Pros and Cons of Protective Property Trusts
Pros:
– Protects assets for your beneficiaries
– Allows your spouse to continue living in the property
– Can potentially reduce care home fees
– Offers protection against bankruptcy or divorce of beneficiaries
Cons:
– Can be complex to set up
– May be challenged if seen as deliberate deprivation of assets
– Could limit flexibility for the surviving spouse
– Potential tax implications
Are Protective Property Trusts Legal?
Yes, these trusts are legal. However, it’s crucial to understand the concept of ‘deprivation of assets’. If a local authority believes you set up the trust specifically to avoid paying care fees, they may challenge it.
For example, if your spouse already had significant health issues when you set up the trust, it might be seen as deliberate deprivation. On the other hand, if you set it up while both in good health as part of general estate planning, it’s more likely to be accepted.
You can read more about deliberate deprivation here.
Is a Protective Property Trust Right for You?
Consider a Protective Property Trust if:
– Your home is your main asset
– You’re concerned about potential care home fees
– You want to ensure your children inherit at least part of your property
– You want to provide security for your surviving spouse
However, these trusts aren’t suitable for everyone. It’s essential to get professional advice tailored to your specific circumstances.
Next Steps
If you’re interested in learning more about Protective Property Trusts or other ways to safeguard your family’s future, we’re here to help. Contact our team on 01865 507174 or at info@adewills.co.uk for an initial discussion, and we can guide you on the next steps or refer you to specialised advisors if needed.
Remember, planning for the future is one of the most caring things you can do for your loved ones. Take the time to explore your options and make informed decisions that align with your family’s needs and values.
