Town and Country Law provides professional advice to help clients plan responsibly for the future, with the organisation’s fully regulated legal team providing will-writing, probate and estate planning services. This article will look at trusts and their effectiveness at protecting property to ensure that legacies are passed on in the right way to the intended beneficiaries.
Under the laws of England and Wales, will trusts and protective property trusts are two types of trust that can be established as part of the estate planning process. Each has its own distinct purpose, with the two trust types working together in some scenarios to achieve specific goals, such as safeguarding the settlor’s assets and ensuring their wishes are adhered to following their death. A will trust comes into force only after the settlor’s death. Where an intended beneficiary is under the age of 18, a will trust can be a particularly effective tool in terms of safeguarding legacy and ensuring it is only passed on once the intended recipient is mature enough to receive it.
Although making a will is a relatively straightforward process, many misconceptions surround the topic of trusts. However, in terms of protecting assets and avoiding them being diminished by care fees and taxes, a trust can be an incredibly effective tool, safeguarding legacies for future generations.
Take for example Mr and Mrs Smith. Had they made mirror wills and Mr Smith were to die, Mrs Smith would inherit everything he owned outright. If she were later to need full-time residential care, everything over the £14,250 exemption threshold would be taken into account, potentially leaving just £14,250 to pass on to their children.
On the other hand, had the couple put in place a property protection trust rather than relying on mirror wills, each would leave half of their home in trust when they die. Were Mr Smith to die first and Mrs Smith later require residential care, just half of the value of their home would be taken into consideration, as Mr Smith left his half of the house in a trust. On a property valued at £250,000, just £110,750 would be exposed to the risk of being depleted by care fees after the deduction of Mr Smith’s half plus the £14,250 exemption threshold, meaning an additional £125,000 could be passed on to the couple’s intended beneficiaries.
Although there are rules to prevent beneficiaries disposing of assets to avoid paying care fees, a property protection trust does not infringe those rules. With a property protection trust, the surviving partner has the right to reside in the shared home for as long as they choose or they can opt to move. Regardless, the deceased partner’s half of the property is preserved for whoever they wish to benefit following the death of the surviving spouse.
Another key benefit of property protection trusts lies in their ability to safeguard assets should the surviving spouse remarry following their partner’s death. Although this may seem an unlikely scenario, it can and does happen. When an individual marries or remarries, any will they have executed previously is automatically cancelled. If a person fails to realise this, marries and dies before their new partner, the surviving spouse will usually inherit all of their assets, which may not accord with their wishes if they have children from a previous marriage, for example However, with a property protection trust in place, assets can be ringfenced in the trust, ensuring that they are passed on to the settlor’s intended beneficiaries rather than passing to their new spouse by default following their death.
A property protection trust is more dynamic than a will, enabling the settlor to not only choose who gets what but also safeguard their assets against a range of future scenarios. With an ever-increasing amount of people requiring residential care, a property protection trust provides valuable peace of mind, enabling couples to pass more of their assets onto their children irrespective of what the future holds.
