Property Preservation Trust

Leaves the share of the property ‘in Trust’ for the chosen beneficiaries

The priority for most of us when we die is to ensure that our loved ones inherit from us and that our assets pass safely to them, without risk of being lost.  This may not always be as simple as we would wish.  Assets may be ‘lost ‘to our loved ones in a number of ways; one of which might be to pay for long term care of our spouse/partner after our death.

If the estate of the first to die is left outright to the surviving partner/spouse then the whole estate of the survivor (their own assets plus those inherited) will automatically be assessed and then potentially used for payment of the long term care of the survivor.

Alternatively, even where the estate is not left outright to the surviving partner/spouse or where no Will has been made but a property is owned as Joint Tenants, then it will automatically pass to the surviving owner on death and again assessed for payment of long term care costs.

The above two scenarios mean that the assets of the first to die may not be available to be passed onto children or other beneficiaries.

If one partner were to die and after their death, the survivor required long term care, then it would be better not to leave all of their estate outright to the survivor under their Will.  Careful consideration needs to be given as to how much to leave outright to the survivor and how much to leave on trust – e.g. just the main residence, other rental properties or the whole estate.

If the circumstances and requirements dictate that only the property can be or is required to be protected then the Property Preservation Trust is the solution.

How does the Property Preservation Trust work?

Wills are written including a Property Preservation Property Trust, which leaves the share of the property ‘in Trust’ for the chosen beneficiaries, usually the children.  The Trust also protects the interests of the survivor, by allowing them to live in the property until death or, if required, until he/she cohabits or remarries.  The rules of the trust also allow the survivor to sell the property and buy another should they so desire.

Should the survivor need long term care the local authority cannot include the share of the property held in trust in their assessment as it is owned by the trustees of the trust.  On the death of the survivor, the share owned by the trust is then passed to the beneficiaries.

If the property is own as Joint Tenants then the ownership must be changed to Tenants in Common.  Owning your property in this way means that you can “gift” your share to whoever you wish in your Will.  A Property Preservation Trust would be created in both Wills to handle the ownership of each share of the property.

Other points of note

  1. As this is a Will Trust, nothing happens until first death so there is nothing to stop you selling, renting, raising capital against the property or remortgaging.
  2. Another benefit of the trust is that if the survivor goes on to remarry, he/she cannot leave the whole of the property to their new spouse, as a portion is already owned by the Trustees.
  3. Where the property is a rental property rather than the principal place of residence then the “life interest” in the property equates to the right to draw the rental income rather than the right of occupancy.
  4. Where more than one property is owned it is possible to have different trusts dealing with each property.
  5. The trust is “neutral” for Inheritance Tax (IHT) meaning that it shouldn’t be used if your primary concern is inheritance tax mitigation. This means
    1. The value of the share held in trust still forms part of the estate of the survivor for IHT calculations, even though the asset itself doesn’t;
    2. If you are unmarried then if value of the share of the property gifted into trust exceeds the prevailing Nil Rate Band then IHT will be payable on the gift;
    3. If you are married then, as the life tenant is the spouse. the spousal exemption still applies and the surviving spouse will still have twice the prevailing Nil Rate Band available to be claimed on their death.
  6. If the survivor terminates their life interest and survives for seven years then the share of the property held in trust drops out of their estate for IHT calculations.

For more information on property tenancy and changing ownership of property see our page on Property Tenancy.

Our Property Preservation Trust PDF provides an explanation of the trust and a case study.

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