Protective Property Trust Wills
Not only does the population of the U.K. continue to grow, but it also continues to grow older, with average life expectancy now slightly over 81 years! However that comes at a price, the increased likelihood of needing some sort of care – probably long-term – in your later years.
The funding of long-term care has long been in the public eye and under scrutiny from all sorts of quarters, and will probably continue to be so for some time. Although much talking has been done on the subject and it continues to be discussed at great length, very little has been done by successive governments, of differing political persuasions, to increase local authority funding for care. As things stand at the moment, recipients of care – and very often their families too – must fund the care from their own resources.
How much each of those needing care can afford to pay is determined by a means test. Currently if their total assets are valued at £23,500* and over, there is no contribution from the local authority to any care costs. If the person has total assets valued at under £13,500*, then the local authority will pay all the care costs. These figures are for total assets i.e. they include the value of any property, so if you are a homeowner, you will most certainly not be eligible for any contribution to your care costs from the local authority.
It is a sorry state of affairs when couples, be they married or not, have worked hard all their lives to own something of real value to pass on to their children (or other loved ones), only to lose it in funding long-term care. With average care home fees in the South East and Midlands now around £600-700 per week, it’s easy to see how quickly the value of even a modest property can be eroded entirely.
Around 70,000 homes per year have been lost over the last ten years or so to fund long-term care costs. This is particularly hard on families where the house is very often the only asset in an Estate.
However, the local authorities are not so cruel as some would have us believe, in that if the recipient of long-term care has a dependent still resident in the family home, the property is not sold at that point to raise the cash to pay for the care, but a charge is placed against the value of it, in favour of the local authority, and is realised following the deaths of both owners when the sale is effected.
The solution to this worrying and increasing problem is to ensure that joint property owners arrange their affairs in a slightly different way – by placing the property in to a Protective Property Trust which is triggered by the death of the first owner, the terms of the Trust being dictated by the deceased’s Will.
First of all, joint ownership of the property is required – the mechanism will not work unless there are two persons in ownership, so for solely owned property a different type of Trust is required which is known as a Lifetime Trust of Property.
If the property is owned as beneficial joint tenants, which is a very common form of ownership here in the U.K., although unrecognised in most of the rest of the world, there is no defined ownership share given to each tenant. They simply own together as a partnership and are viewed in all situations, including any means test, as a partnership and therefore each of them can be assessed against the full value of the property. Under beneficial joint tenancy, the death of a partner triggers the passing of ownership, by survivorship, to the other partner – without the need for a Will.
This ownership has to be altered to Tenants in Common, which recognises that each person in ownership has particular percentage shares of ownership – usually 50/50, although that need not be the case. Then that fact has to be registered against the property title at the Land Registry. This process is known as a Severance of Tenancy, and the mechanism will not work unless this is done.
With the Deed of Severance and registration of same in place, the separate shares in the property must be dispersed by Will.
So, the Will of the first in the joint ownership to die dictates that the deceased’s share of the property will pass in to a Life-Interest Trust in favour of the children – usually, although not necessarily – with a right of residency left for the surviving joint owner, who of course still owns his/her share as before.
In this way, the two shares remain distinct and neither share is vulnerable to attack from any third party – including the means test for long-term care. But it could mean other third parties, like if the survivor has gone on to re-marry and decided to alter the path of his/her own assets, the path of the deceased’s Trust assets have been determined by the Trust and cannot be varied.
This is a tried and tested method of legally shielding what is probably the most valuable asset in any Estate, has been in use for over a century. It leaves the surviving owner with the controlling interest in the Trust, as he/she will always be appointed as joint Executor/Trustee within the Will. It gives a lifetime right of occupancy, amongst other things, but no ownership of the Trust assets, which is why they cannot be assessed against that person’s Estate. Most importantly, it doesn’t give ownership at that point to the children, or other ultimate beneficiaries, so if they fall on hard times financially or suffer a relationship breakdown, your valuable property cannot become part of a claim against their Estate, as it would if you had given it to them outside a Trust.
The method described is legal provided that at the time the arrangement is made neither owner has any knowledge whatever that he/she is going in to long-term care or will need long-term care imminently.
If this proves to be the case, the local authority does have the right to claim Deprivation of Assets, and unravel the Trust arrangements. So, as with many planning measures in Inheritance Matters, this arrangement is best done now rather than waiting any longer, as circumstances do have a habit of changing quickly.
* Figures given for 2014-2015
If you or anyone you know is looking for more help and guidance regarding Protective Property Trust Wills, then give us a call for a confidential, no pressure consultation. We are able to visit you in your own home at a time that is most convenient for you.
The Company currently services clients throughout the West Midlands, Warwickshire, Oxfordshire, Northamptonshire, Buckinghamshire, London and the Home Counties.