A Property Protection Trust (PPT) – also known as an Interest in Possession Trust – is a complex Will for two people, who own property between them. It has several caveats in it that cannot be changed after the death of the first person. PPT’s are not suitable for people who own property in their sole name.
Most couples own their property jointly and severally, meaning they are liable for 100% of any debt against the property. When arranging a PPT, the ownership of the property is changed at Land Registry into tenants in common (TIC), meaning that you will then own 50% of the house each. The benefit of owning a property as tenants in common are that you are only liable for any debt held against your share of the property and not that of your co-owner.
This is only the first step of the process. The second stage is to change your Will.
Both parties have a new Will drafted, ensuring that a Trust is set up in each Will, with named beneficiaries (often children). On first death, the deceased’s 50% of the property drops into the Trust and is then protected against any future 3rd party claim.
In both Wills, we always advise a Right of Occupation meaning that the surviving spouse has the right to remain in that property for life, as they have what is called, a full life interest.
We always suggest a Right of Substitution meaning the surviving spouse can sell the house, downsize, or do what they wish with the property without interference from the beneficiaries of the Trust.
Both Wills need a minimum of two Trustees. The Trustees are normally the surviving spouse initially, with the children (or chosen beneficiaries) who are due to inherit the property in the future. It is important to include the children as Trustees (or other trusted persons) as should the surviving parent lose capacity; the property could fall into disrepair and lose value as a result.
When the second spouse dies, their share of the property is left to the beneficiaries absolutely, the Trust then ceases, and the house can be sold, and the money divided between the beneficiaries in accordance with the wishes set out in both Wills.
Marriage After Death Benefits
Should one of you pass away, your 50% of the property will drop into a Trust set up in your Will, thereby protecting it for your children or chosen beneficiaries. Your spouse’s half remains untouched as this only happens on first death.
Your spouse is free to do what they want with their half. If they choose to remarry, they can leave their half to their new partner; however, the deceased’s half stays in the Trust for the children (or chosen beneficiaries).
When the surviving spouse then passes away, their share of the property is left to their chosen beneficiaries absolutely, the Trust then ceases and the house can be sold and the money divided between the beneficiaries in accordance with the wishes set out in both Wills.
This type of arrangement is ideal for protecting children from a first marriage in the event of one parent dying and the remaining parent re-marrying after death. It is also ideal for couples who have children from previous marriages and wish to protect their respective children.
Nursing Home / Care Fees Benefits
Prior to death, should either of you need full time nursing care, as we have severed the tenancy and changed the property ownership into ‘tenants in common’, the Local Authority could only means test the 50% of the property of the person in care, meaning the other person’s half of the property remains untouched.
If no prior means testing has taken place: when the first spouse passes away, the property will fall into the trust within the Will, meaning that if the survivor then needs nursing care, the Local Authority can only means test the survivor’s half of the property.
If the tenancy of the property is not severed and one spouse requires nursing care, should the second spouse pass away leaving the whole house to the party in care, the Local Authority will means test the value of the entire property meaning that the whole property will most likely be lost to care fees.
When arranging a Property Protection Trust, The Planning Bee always advise that PPT’s work best when hand in hand with a Lasting Power of Attorney.