Asset protection Trusts sound very dull and boring, but they can help resolve important everyday issues for many people.
There are several different types of Trust that can be used in different circumstances. The first one is a Property Protection Trust and is appropriate for married couples and those not married but living together.
By owning your house as tenants in common, you can prepare mirror Wills containing Property Protection Trusts. When the first partner passes away, the deceased’s share of the house is held in trust for their choice of beneficiary, but the trust allows the surviving partner to continue to live in the house as long as they are able. After the survivor passes away, the trust effectively ends and the house is sold with the proceeds being distributed under the terms of the Wills.
The trust is only created when the first partner dies, it cannot be created during their lifetime. However, the advantage is that if the surviving partner has to go into care, the deceased’s share of the property cannot be taken to pay for care fees because that share is not an asset belonging to the survivor, it belongs to the Trust.
The trust is also useful for those couples who enter into second relationships and want to protect their property (ie inheritance) for their children from the first relationship. The trust avoids what is known as ‘sideways disinheritance’. For example Mr and Mrs A have mirror Wills leaving everything to each other, then to their children on second death. Mr A dies and Mrs A subsequently remarries to Mr X. Marriage revokes a Will but the new Mrs X forgets to re-write hers. Sadly Mrs X dies and through the intestacy rules Mr X inherits everything from her. Mr X dies a couple of years later and through the intestacy rules he leaves everything to his side of the family. Mrs X’s children do not receive a penny because their inheritance passes sideways.
If Mr and Mrs A had a Property Protection Trust, at least Mr A’s half of the house would have been protected for his children.
The trust also protects assets for unmarried couples in circumstances where they have bought a house together.
It is also effective for those couples where one partner has moved into a property solely owned by the other partner. The Property Protection Trust is amended to allow the incoming partner a ‘right to occupy’ for a specified period, after which the property is sold and the proceeds distributed in line with the deceased’s Will.