Common Questions in our Inbox: Property Protection Trusts

Welcome to the second in a new series of articles from the SWW Technical Team; Common Questions in our Inbox. For this instalment let’s talk about one of the common will trusts – the property protection trust (PPT).

A PPT is designed to take the deceased’s share in the home and give someone else (known as the life tenant) a life interest in the property which will give them the protection of living in the property for the remainder of their lifetime, or earlier if the trust specifies i.e. remarriage. It also ensures that if the survivor requires long-term care, at least half the property is preserved for the benefit of their beneficiaries who are normally the deceased’s children.

These types of trusts are normally used for married couples or civil partners to ensure the share of the home will ultimately pass to the children at the end of the trust period whilst still ensuring the interests of the surviving spouse are protected.

Can a life tenant be someone other than the spouse?

Yes. A life tenant can be anyone you want to provide the life interest for. If the life tenant is a spouse or civil partner, the interest will pass to the trust free from inheritance tax (IHT) due to the spousal exemption.

If the life tenant is someone other than the spouse, IHT may be payable.

Can the trustee of a PPT be a life tenant?

Yes. However, we would advise one other trustee be appointed who is neutral to avoid a conflict of interest.

Can you have more than one life tenant?

Yes. You can have more than one life tenant of a trust. The point we would add is that each life tenant is treated for IHT purposes as having an equal share of the trust fund. On each life tenant’s death, their “share” is treated as part of their estate and passing equally to the surviving life tenants. On the last surviving life tenant’s death, the whole property would be valued and included in the life tenant’s estate for IHT purposes.

If a home is owned as joint tenants, can a share of the home be placed in trust?

If the homeowners own the home and each want to grant the other a life interest, the home would need to be held as tenants in common before it can enter this trust. In order to achieve this, a notice of severance would need to be completed and a SEV form sent to the land registry which will place a restriction on the title register.

The title register should always be checked before this trust is drafted in the Will.

Can a property that belongs to a company be placed in a PPT?

I am afraid not. If the property is owned by the company and not by the individual personally, then the property cannot be dealt with separately from the other company assets.

Can a property that is subject to equity release enter into a PPT?

Whilst we are not experts in this area, the general position is that a property that is subject to equity release cannot usually be placed into a PPT on death as a mortgage or charge on a property needs to be paid off before the asset can enter the trust.  That’s not to say it’s impossible, but you would need specialist advice in this area. Therefore it is best to enquire with the equity release lender and seek confirmation from them in writing.

Can putting a property in a PPT be considered deliberate deprivation of assets?

Not currently. Deliberate deprivation would only apply for lifetime trusts and not will based trusts since the trust is normally created on first death and therefore there would be no deprivation. Deliberate deprivation only applies where a person gifts assets in their lifetime with the intention of avoiding those assets being used for their own care. It does not apply if a person gifts their assets into a trust on death or in any way to avoid those assets being used to pay towards another person’s care.

Have a question of your own for the SWW Technical Team*? Send it to us at [email protected] and where possible, we’ll advise.

*Technical advice is available only to full members of the SWW (MSWW^) and is provided by email only. For more information about accessing our technical advice service, please see here.