Property protection trusts
Do you own a property with somebody else? If so it is important to know that there are two ways of owning property jointly: as joint tenants or as tenants in common.
‘Joint tenants’ means that the co-owners own the whole property together. If one co-owner dies, the whole property passes to the surviving co-owner(s) by survivorship. This tends to be the most common form of co-ownership.
‘Tenants in common’ means that each co-owner owns a share of the property. This might be in equal or unequal shares. When a co-owner dies, their share will form part of their estate and therefore pass under the terms of their will (or under the rules of intestacy if the individual has not made a will).
If you own your property with somebody else as joint tenants, you can change the ownership to tenants in common. This is known as severing the joint tenancy on your property and can be achieved simply by signing a notice, known as a notice of severance, and serving it on the other co-owner.
If you sever your joint tenancy, you will own your property as tenants in common, which will then allow you to dispose of your share of the property under the terms of your will. You may then wish to include a Property Protection Trust in your will, which can have the effect of safeguarding your share of the property for your loved ones in the future.
For example, a Property Protection Trust would typically grant your spouse or civil partner a right to live in the property for as long as they wished, but when they ceased to live in the property permanently, the trust would come to an end and your share of the property would then pass to ‘remainder’ beneficiaries of your choosing, typically your children.
This would mean that if your spouse or civil partner went into permanent residential care after your death, their estate would only include half of the property for means-tested purposes. Your half would be ‘protected’ from any claims from the local authority and would pass to your children at that point. The situation would be very different if the property had been owned as joint tenants and passed outright to your spouse or civil partner on your death.
Another benefit of the Protective Property Trust might be to ensure that, if your spouse or civil partner met somebody else after your death, your share of the property would still be preserved as an inheritance for your children.
A Property Protection Trust can be drafted with as much or as little flexibility as you wish. For example, you can include the right for your spouse or civil partner to direct your trustees to sell the property and buy a new one with the proceeds for them to live in. You can even include the right for your spouse or civil partner to keep all surplus funds from the sale and purchase.
If you are not married or in a civil partnership, you can still benefit from a Property Protection Trust, however there would be tax implications to consider.
Of course, whether a Property Protection Trust is right for you will depend on your individual circumstances and your wishes.