All about Property Protection Trusts
Posted 17th November 2018
For most couples the Wills they have written will be simple and basic in nature leaving
the total estate to one another on first death and then to surviving children upon
second death. For some this may be adequate, but for many people this simple Will does have limitations and can leave your property potentially at risk from factors such as care home fees and sideways disinheritance (family losing inheritance through re-marriage).
Let’s look at an example:
With a simple Will:
John and Mary are happily married and they have two children. They are homeowners and the value of their house is £175,000. They have recently made Wills where they leave everything they own to one another on first death and then equally to the children upon second death.
Unfortunately, Mary passes away several years later, the Will that they made comes into use and everything passes to John including the family home.
A few years down the line John develops dementia and whilst the children try to care for him to the best of their ability unfortunately his health declines, and they have no option but to place John into a residential specialist care facility.
As we all know John was means assessed for his care fees and as his estate was £190,000 (home value £175,000+ £15,000 savings), which was in excess of £23,250. This meant that he had to pay for his own care fees at a cost of approximately £40,000 per year. The family had no option but sell the family home to fund this.
John survives for three years and sadly passes away having spent approximately £120,000 in care fees. As per the Wills he and his wife made years before the remainder of the estate £70,000 (£190,000-£120,000) is divided between their two children.
In this example the children’s inheritance has been significantly reduced from having to pay care fees. More importantly planning ahead with a Property Protection Trust could have helped save a lot of money for their children.
With a Property Protection Trust:
Looking back at the same example John and Mary when they recently made their wills took expert advice and took out a Property Protection Trust. They changed their ownership on the house to be that of 50% each and state that on first death, their 50% is to be placed in Trust and their children will inherit equally upon second death.
Unfortunately, Mary passes away several years later but instead of John inheriting the whole house in his name, Marys share passes into a Property Trust. This does not affect John in any way as he continues to use and live in the property as he did before and can even move house to one more suitable if he wishes. He however decides to stay in the family home.
Again a few years later John develops dementia and ends up in a care facility despite his family’s best intentions. When John was means assessed for care costs, he was liable to pay for his own care as his estate when valued was £102,500(£87,500 Johns share of his home value + savings of £15,000) which is in excess of £23,250. The care facility still costs £40,000 per year a but after just over two years, the care fees have reduced Johns estate to £14,250 which is the threshold where John received maximum financial help for care fees.
Again, three years after entering care John sadly died, and as per the Property Protection Trust the remainder of the estate passes equally between their two children. In this example the children inherit Mary's £87,500 (share of the property which was placed in trust at her death) and Johns £14,250 remaining from paying care fees totalling £101,750.
By planning ahead and making a sensible decision John and Mary have increased the amount of inheritance left to their loved ones by over £30,000.
Although the above example focuses on care fees, a Property Protection Trust can also help in the event of relationship breakdown and remarriage, ensuring that your children’s inheritance will not end up passing to another family (sideways disinheritance). It is also a sensible precaution where a couple have children from different relationships and want to ensure that each side of the family receives a proportion of the family home.
A Property Protection Trust is an affordable way to protect your share of your biggest asset which is your family home.
A Property Protection Trust, is a Trust that is set into the Wills of homeowners, that as the name would suggest, helps by protecting the property that you live in.
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