For many people, their home is their most treasured asset and a trust can help preserve a family home for the next generation. A property protection trust (PPT) is used by married couples or those in civil partnerships who are co-homeowners to protect the property for the surviving spouse.
The PPT allows a named life tenant (usually the surviving spouse) to benefit from the home in their lifetime and can also reduce Inheritance Tax (IHT).
This guide covers the benefits of this type of trust, the costs involved and how to set one up.
What Is a Property Protection Trust?
A Property Protection Trust (PPT) is a trust designed to safeguard a home, often included in a will to protect assets for future generations. It adds security for those wanting to protect assets for family and loved ones. The trust activates after the individual’s passing and serves two main purposes: protecting assets for beneficiaries and allowing life tenants to use the property.
A life tenant has the right to use the property during their lifetime, either by living in it or renting it out for income. A PPT also ensures the home's full value isn’t considered when the Local Authority assesses your assets if you need care.
As Care Home highlights, care costs can be high. In England and Northern Ireland, those with assets over £23,250 must pay in full. In Wales, the threshold is £24,000, and in Scotland, it’s £35,000. A PPT can help protect your property while ensuring care needs are met.
Key Benefits of a Property Protection Trust
Asset Protection
A PPT safeguards assets and preserves inheritance. When one spouse passes away, their share of the property is held in the trust, protecting it from being used for future care home costs.
If the surviving spouse later requires care, the local authority cannot claim the property share held in the trust. This ensures the assets are preserved for intended beneficiaries, usually children or grandchildren. A PPT also protects inheritance if the surviving spouse remarries. The deceased spouse’s share stays within the trust and passes to the designated beneficiaries, not a new partner. This helps protect the family home and the inheritance plan.
Life Interest for Beneficiaries
A property trust enables a surviving spouse or partner to either live in the property as their main residence or earn income from its assets throughout their lifetime. This income could come from renting the property out to tenants or using it as a holiday home to generate revenue.
The trust ensures that the property is preserved for future beneficiaries, such as children or other family members, while still providing financial security and flexibility for the surviving spouse or partner.
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What Does a Property Protection Trust Cost?
The cost of setting up a property protection trust can vary but is typically upwards of £1,000. Complex trusts are likely to be more expensive, costing around £2,000 or more.
Factors that can influence the cost include:
The value of the estate
The complexity of the estate
If there are overseas properties and assets
Setting Up a Property Protection Trust
Before setting up a trust, it is vital to consider what you want to happen to your estate and who should benefit from it. You must review your assets and consider what you want to include in the trust.
Consult Professionals
Trusts can be complicated and confusing so it is strongly advised that you seek the assistance of a legal professional. They can help you plan and set up a trust so that it works best for you and your future beneficiaries.
Change in Property Ownership
According to PHR Solicitors, setting up a trust may mean a change in how the property is owned. When a residential property is owned by two people, they are typically known as "joint tenants".
Upon the death of one owner, the property then automatically passes to the surviving owner.
With a PPT, the ownership of the home must change from joint tenancy to “tenants in common”. This change allows each owner to leave their half of the property they own to their beneficiaries in a trust.
For more information read: Tenants in Common or Joint Tenants?
Draft Legal Documents
When drafting your wishes for the trust, you must use precise wording and make the document as clear as possible. A solicitor can help you understand any legal implications and advise you on the best way to express your wishes.
Appointing Trustees and Beneficiaries
Beneficiaries are those you want to benefit from your estate. A trustee is someone who will manage the trust. It is possible, and often common, for someone to be named both beneficiary and trustee of a trust.
When it comes to choosing your trustee(s), consider those individuals in your life who are reliable and trustworthy. They must be someone who is willing to manage the trust and aims to do so in the best interests of all beneficiaries.
Review the Trust
As with a will, it is important to periodically review the trust in your lifetime to ensure it still meets your requirements. Being proactive about this means the trust will continue to serve its intended purpose.
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Common Misconceptions and Ethical Considerations
One of the main misconceptions is that trusts shield against long-term care fees. When a spouse dies, their half of the property value is held in the trust.
The surviving spouse’s half is not and may be utilised if they need care in the future. In this case, the Local Authority would consider their half of the property value when reviewing available assets to cover the costs.
Although it is legal to do so, it can be questioned as to how ethical it is to avoid care fees. These costs ultimately fall to the Local Authority, funded by taxpayers. This is very much down to personal opinion and something that should be considered when setting up a PPT.
Key Takeaways
Placing your property in a trust has numerous benefits, providing peace of mind that your loved ones will be provided for in the event of your death. Not only can it ensure your spouse has somewhere to live and potentially make money, it can help protect the home for future generations.
Property protection trusts can be challenging and complicated, so it is important to seek a legal expert's advice. A solicitor can guide you through the steps and find the best solution for you and your family.
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Finding a Professional Will Writer
A will writer or solicitor can provide reassurance that assets are protected for loved ones and future beneficiaries. During what can be a challenging time, they will explain legal jargon and assist you with the steps required to set up a property protection trust.
At Compare My Move, we can match you with up to 6 will writers on our partner network. They work with the utmost sensitivity, ensuring the process is as seamless as possible.
We have a strict verification process in place for all potential partners. Our network of will writers and solicitors must be regulated by either:
Solicitors Regulation Authority (SRA)
Council for Licensed Conveyancers (CLC)
Law Society of Scotland (LSS)
Law Society of Northern Ireland (LSNI)
Chartered Institute of Legal Executives (CILEX)
The Institute of Chartered Accountants (ICAEW)
Institute of Professional Will Writers (IPW)
The Society of Will Writers (SWW)
