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Why a Property Protection Trust could be an option for your clients

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’ in a number of ways; one of which might be to pay for long-term care of a 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 spouse (their own assets plus those inherited) will automatically be assessed and then potentially used for payment of any long-term care they may need.

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 be assessed for payment of long-term care costs.

The outcome of both scenarios is that the assets of the first to die may not be available to be passed onto children or other beneficiaries.

How does a Property Protection Trust work?

Wills are written including a Property Protection 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 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 Protection Trust would be created in both Wills to handle the ownership of each share of the property.

Points to remember:

  1. As this is a Will Trust, nothing happens until first death so there is nothing to stop the client 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 the primary concern is inheritance tax mitigation. This means:
    • 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
    • If the client is unmarried then if the value of the share of the property gifted into trust exceeds the prevailing Nil Rate Band, then IHT will be payable on the gift
    • If the client is 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
    • 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.


To find out more about PPT and other Trusts just call us on 01522 500823.

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