Protect What is Probably Your Largest Asset
A Protective Property Trust (also known as a Life Interest Trust) does what it says on the tin – it protects property!
There are four main areas where we would generally recommend a Protective Property Trust, and these are:
- To protect against care home fees
- To protect all your children’s inheritance
- To resolve disagreements on who should get what!
- To protect against creditors
Protection against care home fees
We probably all know a family that’s suffered at the hands of the most draconian tax of all, the Community Care Charge, which has eroded virtually all the value of the family home because one of the owners was taken into long-term care.
Firstly, it’s important to understand why homes are seized at all. Every year local authorities in England and Wales seize the homes of around 70,000 families to pay for care costs which can wipe out all but a few thousand of a person’s Estate. However, for the local authority to be able to do so, both of the following conditions must be met:
- The person in care must be worth at least £23,250 (including the value of their home), and
- They must own 100% of their property (excluding the mortgage)
So how can a Protective Property Trust prevent this from happening?
To effect a Protective Property Trust BOTH partners must still be alive, AND the property must be owned on a Tenants-in-Common basis, as opposed to a Joint Tenancy basis.
By ensuring that neither partner owns 100% of the property outright on the death of the first party the Protective Property Trust clauses in you Will state that the first person to die does not leave their share to the survivor. For the protection of the survivor it is specified that they have a “Life Interest” in the property allowing them to remain in the family home until their death. It is even possible for the surviving partner to move home with the terms of the Trust. This arrangement means that the survivor only owns 50% of the property and, as a result, the local authority cannot seize the deceased person’s share.
The most important aspect here is that the revised ownership arrangements, and the Will incorporating the Protective Property Trust, must be carried out PRIOR to either of the owners requiring long-term care. Once an owner is in long-term care it is too late to effect this measure of protection!
The current cost of long-term care
If you’ve not already thought about what could happen to your home if either you or your spouse/partner have to go into care the current cost of long-term care is likely to be quite shocking. The harsh reality is that the value of your family home can be dramatically reduced by Community Care Charges for long-term nursing and residential care home fees. Currently, nursing home care in England and Wales costs in the region of £750 a week (almost £40,000 annually), and with an average stay in care of about 4-years, the total erosion of the family home could be nearly £160,000.
It’s interesting to note that the cost of setting-up a Protective Property Trust in your Will, including changing the property ownership from Joint Tenancy to Tenants-in-Common at HM Land Registry, is probably less than half of one week’s nursing home fees, and probably totally insignificant in comparison with the savings your Estate could well make!
Protecting ALL your children’s inheritance
Many parents these days have children from more than one relationship, perhaps because they have remarried. If your family structure includes a child (or children) from a previous relationship there is a danger that in the event of your death, not all of your children will be catered for, and may be unfairly disinherited.
To understand this important aspect more clearly, let’s consider the following example:
- Alan marries Nora
- Both have been married previously
- Alan has two children from his first marriage (Ben and Charlotte)
- Nora has one child from her first marriage (Paul)
- Since their marriage Alan and Nora have had a child together (Wanda)
Alan and Nora are happily married and when making their Will, as is usual, leave their Estates to each other. They agree that in the event of one of them dying the survivor will “look after” all of the children.
Now let’s take this example a little further. Alan is involved in a serious accident and dies. As a result, Nora inherits the entire Estate. A few years pass and Nora falls in love with, and marries, her new partner, Oliver, who has a child (Steven) from his first marriage. They have no children together.
Again, Nora and Oliver make their Wills and agree to leave everything to each other, and promise each other that in the event of their death the survivor will provide for all their children.
You can probably see the potential problems at each stage.
On the death of Alan, Nora could change her Will to leave the Estate to her two children (Paul, from her first marriage, and Wanda). This would effectively disinherit Alan’s children from his first marriage (Ben and Charlotte).
However, on her death, Nora’s Estate has passed to Oliver, who could now change his Will and leave the entire Estate to Steven, his only child from his previous marriage. By this stage none of Alan or Nora’s children have received an inheritance, despite all the promises that have been made along the way. All the children, apart from Steven), have suffered the effects of sideways disinheritance.
As most of the value of a person’s Estate is usually made up from the value of the family home the effects of sideways disinheritance can largely be avoided by incorporating Protective Property Trusts within your Will.
In our example here, if Alan and Nora had used Protective Property Trusts their Joint Tenancy ownership of the family home would have been converted into a tenants-in-common basis with each owning 50% of the property. By doing so Alan would have left his 50% share to his children (Ben and Charlotte from his first marriage, and Wanda who he had with Nora). The Protective Property Trust incorporates a life interest for the survivor. Nora would have left her 50% share of the property to her two children (Paul, from her first marriage, and Wanda).
So if you have children from more than one relationship, and you are concerned what will happen to your children’s rightful inheritance, then speak to us about including a Protective Property Trust in your Will. Let’s face it – none of us know just what’s round the corner – and we’d all hate to think that our children could be excluded from their inheritance. No matter what promises are made, the tendency is for the survivors to protect their own children. All too often children from former relationships can be subject to sideways disinheritance and denied their rightful inheritance.
Resolving indecisions as to who should get what!
The Protective Property Trust can also be very useful where joint owners cannot agree as to how the asset should be left. Whilst most couples are happy to mirror each others wishes when it comes to leaving their assets, this is not always the case. Despite being married for a lifetime some married couples have difficulty in deciding how their Estate should be split. It’s a fact that most parents will leave their Estate split equally between their children – but not always. Where couples can’t agree the solution could be to convert the property ownership to a tenants-in-common basis. By doing so each partner can leave their half of the family home whichever way they want!
However, the problem becomes more acute when one party has children, and the other doesn’t. If the childless partner doesn’t get on with their partner’s children they will undoubtedly be insistent that their share of the property goes, for example, to their family, friends or charity. Again, a Protective Property Trust will ensure that each other’s wishes are secured, as well as protecting the survivor with a life interest.
Protection against creditors
A considerable proportion of the population are nowadays self-employed, and as such may be required to provide personal guarantees if they ever want to borrow money from their banks. Accordingly, if you or your partner are self-employed it may be appropriate to consider changing the ownership of your property to a tenants-in-common basis. By doing so it’s likely that if your business gets into difficulties, your property will be protected against the bank or other creditors (apart from the mortgage provider) being able to force a sale.
Although the concept of asset protection may seem highly complex, its use can be extremely beneficial to you and your family. If your circumstances fall into one of the above categories.
If you would like to discuss how using a Protective Property Trust could help you please contact us, we will be more then happy to explain how this scheme could protect your property from third parties, as well as protecting your beneficiaries inheritance.
We pride ourselves in providing you with a personal and professional service which we believe you’ll find to be second to none!
And the cost!