Although a Will may seem straightforward, Inheritance Tax and care home fees are anything but. Your Estate may be consumed by high taxes and fees, leaving only a small amount for your chosen beneficiaries. However, Property Protection Trusts can mitigate the amount needed from your Estate to pay for care and fees.
Protective Property Trusts
A Protective Property Trust, also known as a Home Protection Trust or a Property Protection Trust, is a type of Trust that is most suitable for married couples or couples in a civil partnership who own property together.
Reasons you may choose to establish a Property Protection Trust could include:
- To allow your surviving spouse to remain in your property but still ensure your children inherit if your partner remarries.
- To enable your surviving partner to live in your property after your death.
- To safeguard your home against future care fees.
- To ensure the probate process runs smoothly after passing away.
Property Protection Trusts were previously a common way of reducing Inheritance Tax paid on a property. By splitting ownership between spouses, the Estate would be halved and fall under the nil-rate band so that less or no tax would need to be paid. However, in 2007, new laws were established to allow spouses to transfer unused Inheritance Tax allowances to one another, so Property Protection Trusts have since been used for other purposes.
Many people consider establishing a Property Protection Trust to limit the high care home fees that could be incurred if they go into care. Doing so prevents them from selling their homes to cover these fees, avoiding any damage to assets left to their Estate beneficiaries.
Although care fees are capped, meaning that no one has to spend upwards of £86,000 on care throughout their life, this is still a large portion of the average Estate. However, a Property Protection Trust can mitigate these fees.
Establishing a Property Protection Trust ensures that half of the home goes into the Trust when the first spouse passes away, allowing at least 50% of the house to pass on to beneficiaries. If necessary, the remaining half can be used for the surviving spouse’s care. When paying for care home fees, as the home is in a Trust, the council will not assess the property as part of your Estate, and the state may fund your or your spouse’s care.
However, purposefully putting your home into a Trust to avoid care home fees is a process called deprivation of assets, which is illegal. If your local council thinks you have purposefully created a Trust to avoid paying fees, they can disregard the Trust and assess your property. Unfortunately, this could result in you having to contribute towards care fees.
Alternative to a Property Protection Trust
You may decide that a Property Protection Trust is not the right step to take for yourself, your spouse, or your beneficiaries. If this resonates with you, there are many alternatives to choose from, some of which include:
- A Family Protection Trust – A Family Protection Trust can hold all of your assets and ensure the wishes outlined in your Will are carried out smoothly. The Trust acts almost like a safety deposit box, allowing you to make any changes you like and deposit different assets.
- Gifts – You may choose to transfer your property to your children as a gift rather than leaving it in a Trust. However, be wary about the Inheritance Tax implications this could bring about as your beneficiaries might end up paying a large tax bill.
- An Inheritance Tax Planning Trust – This form of Trust may help you pay less Inheritance Tax on your assets. If you establish this form of Trust, you will be known as the settlor, and you will nominate Trustees to manage it on behalf of the named beneficiaries. If you survive for seven years after setting up this Trust, you will pay less Inheritance Tax, as any assets placed into the Trust will no longer count as part of your Estate.
There are many other Trusts to consider when planning for later life. This can become complicated, so it is beneficial to seek legal advice. Our expert paralegals at The Planning Bee are well versed in all forms of Trusts and will be able to advise you which would be the best choice for you.
A Property Protection Trust can be a highly beneficial way to protect your assets and ensure that your spouse is taken care of upon your death. This Trust allows a minimum of 50% of your home to pass to your chosen beneficiaries and can help lower the care fees you may need to pay in the future.
Before deciding which Trust to establish, it is vital to consult with a legal professional to discuss how a Trust can work for you. Contact our experts at The Planning Bee today for a free, no-obligation consultation to see how we can help you get the most out of later life planning.