PROPERTY PROTECTION TRUSTS (PPTs)

A Property Protection Trust (PPT) a Trust in which the asset is a property, or a share of a property.

 

The Trust is typically established to allow a current occupant to continue living in the property after the death of a partner or joint tenant, whilst protecting the capital value for the benefit for others. 

Property protection trusts in depth

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”.

The pros & cons

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Pros

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Cons

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If a Life Interest Trust is contained in a Will, the PPT does not take effect until death which means an individual is free to use or dispose of their property during their lifetime, allowing for equity to be released.

A PPT within a will can be protected in the event of a change of circumstances of the Life Tenant, i.e. remarriage, entering long-term care or bankruptcy.

After passing, the deceased will have protected their property (or share of a property) so it will not be classed as deliberate deprivation of assets for the purposes of long term care.

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PPT will require a little more administration as careful consideration is required for the individual circumstances and drafting of the Will and Trust.   

 

 Although tax returns are not required if there is no actual income passing to the Life Tenant, other taxes should be considered as the capital value can be aggregated to the Life Tenant’s estate.

 

In some cases, greater Inheritance Tax is payable due to the overall value of an estate exceeding £2 million for the purposes of the Residence Nil Rate Band, or if the Life Tenant is not married to the deceased.