Protective Proprty Trusts

“For many, the main asset you have is your property. The Protective Property Trust is a widely used and cost-effective means of ‘ring fencing’ this very precious asset. It is flexible, it is safe and can be easily included within your Will”

What is a Protective Property Trust?

A Protective Property Trust (also known as a PPT) is one of the most widely used trusts in Wills today. It gives another person known as the Life Tenant (usually a spouse or partner) a right to live in property for the rest of their life, or for a period specified.

If the life tenant wishes to move, the trustees have the power to sell the property and use the sale proceeds to purchase a substitute property for the life tenant to live in. Any additional proceeds of sale will remain in trust and the income from the funds will be paid to the Life Tenant. Powers to advance capital can also be included should the clients wish.

At the end of the trust, the property can pass to other beneficiaries (usually children).

Why use a PPT?

The most common use of a PPT is between spouses or civil partners who grant each other a life interest in the family home and then provide that their shares in the home will pass to their children at the end of the trust, ensuring that the children will inherit. Gifting the share in the home to the surviving spouse outright in the Will or allowing it to pass to them by survivorship can cause several problems.

If the survivor remarries, the house could be passed to their new spouse under a new Will by intestacy or alternatively, if this new marriage ends in divorce, the house could form part of the divorce settlement. A PPT will ensure that the children (or other chosen beneficiaries) will inherit the deceased’s share.

A surviving spouse could be subject to long term care fees or bankruptcy in the future. If the deceased puts their share of the property into a PPT on first death, that share will be owned by the trust rather than the spouse outright and is therefore sheltered from the surviving spouse’s potential long term care fees or bankruptcy.

PPTs can also be useful for couples who each have children from previous relationships. In such cases the survivor can be allowed to live in the home, and each can leave their own share in the home to their own children. This avoids the surviving spouse from potentially disinheriting them.

Where clients own a relatively large house, the power to downsize can be useful as the Life Tenant may not be able to cope with a property of that size as they grow older.

Clients often are not comfortable with the idea that a surviving spouse could form a new relationship and the new partner could benefit from living in the property. Provision can be made however for the PTT to end, and the share distributed to the beneficiaries if the spouse or civil partner remarries, enters a new civil partnership, or starts living with another person as if they were married/civil partners.

To find out more about how we can help you with a Protective Property Trust, please get in touch.