Property Protection Trust Explained

Firstly, a Trust is a legal vehicle where the ownership of the asset or assets are separated from the person or persons who will benefit from the assets.  The legal owner is called the “Trustee” and the person who benefits from the asset is called the “Beneficiary”.  The Trust itself is the terms on which the Trustee holds the assets for the Beneficiary. 

A Property Protection Trust is simply a Trust where the asset is a property (or a share of a property) and the Trust is established usually for the purpose of allowing a current occupant to continue living in the property whilst protecting the capital value for the benefit for others.  This is very common for individuals who have children from previous relationships but would like to provide a home for their current spouse or partner.

Trusts can be set up in an individual’s lifetime or on their death by Will.

The most typical type of Trust used for properties where the property is also a residence is a Life Interest Trust.  A Life Interest Trust is a trust where you separate the right to income from the right to capital.  The right to income may mean the right to receive interest or dividends from savings or investments or in this case, a right to reside in the property (rent free) or the right to receive the rental income.  The person entitled to the income for their lifetime is called the “Life Tenant” and the person or persons entitled to the capital on the death of the life tenant is known as the “Remainderman”.

 

Property Protection Trust Advantages

The obvious advantage of a Property Protection Trust set up in a Will is that the Property or a share of it can be protected in the event of a change of circumstances of the Life Tenant for example, remarriage, going into long term care, being declared bankrupt etc.

When this type of Trust is set up in a Will, the deceased person is protecting their property (or share of) and therefore it will not be classed as deliberate deprivation of assets for the purposes of long term care as the owner has already died.  

If the Life Interest Trust is contained in a Will, the Trust does not take effect until death which means an individual is free to use or dispose of their property during their lifetime (if needed).  It also means that the can equity release.

 

Property Protection Trust Disadvantages

The disadvantage is that a Trust does require a little more administration although tax returns are not required if there is no actual income passing to the Life Tenant but, other taxes should be considered as the capital value can be aggregated to the Life Tenant’s estate.  This has meant that in some cases, more Inheritance Tax is payable due to the overall value of the estate exceeding £2 million for the purposes of the Residence Nil Rate Band or if the Life Tenant is not married to the deceased. 

Careful consideration is required for the individual circumstances and drafting of the Will and Trust.   

 

How much does a property protection trust cost?

Depending on the complexity of the Trust, you should expect to be paying between £1,500 - £3,000 +VAT to set up Trusts.  The cost is not usually in connection with the drafting of the Trust itself but the advice and the tailoring of the terms of the Trust to suit your needs.

 

What to do next

If you would like to discuss setting up a property protection trust then please call our specialist Trust Solicitors on 0161 941 4000 or alternatively via email lawyers@myerson.co.uk.