Property Protection Trust
This type of trust stands out among other trusts as it will only be applicable to one type of client. Typical clients will generally be families who have little more than one significant asset in their estate, which is the family home.
Often a client’s main concern is that they are worried about protecting their interest in their family home for their spouse or partner, and in most cases, their children. The client wants to ensure that the family home is protected.
The reason for the use of this trust is to protect family members. A classic scenario is where the settlor is concerned about a surviving spouse becoming a vulnerable adult as they grow older, and the client wants to ensure the individual is protected and cared for in the correct way. This type of estate planning also allows for a testator to protect the property for their children in the case of remarriage by the survivor to ensure no sideways disinheritance.
This trust will be able to grant what we call a ‘Life Interest’ to the remaining spouse and allow the Life Interest to have a number of rights under the trust.
The duration of the trust which is granted to the Life Interest will be determined by a number of factors. For example, it could be where the Life Interest’s right to the trust is granted for a number of years, for life, or upon an event e.g. remarriage.
Rights and protection
As previously mentioned these trusts rights can be ended upon an event, meaning that if the Life Interest is to start cohabiting or has remarried the trustees could look to end the trust, as the Life Interest would by their own actions have effectively terminated their rights under the trust.
The trust is very definite in how it provides the rights for the individual who holds the Life Interest, as this trust providescodified rules in what needs to be done.
Examples of these rights are:
- The Life Interest’s has the right to occupy the family home;
- The right to provide a substitute home and the right to occupy the new property. If the original premises becomes unsuitable for any reason the trustees can substitute the property. For example, perhaps the original house becomes unsuitable because of the stairs, and a bungalow might be better suited for the Life Interest’s needs;
- The trust also allows for the Life Interest to receive any income generated from the trust. This will only occur should any of the trust assets be released into liquid funds, i.e. by downsizing the trust property. If this occurs this would allow an income to be given to the life tenant;
- This trust will also allow the trustees the right to grant a loan of the trust fund at the discretion of the trustees which can be very useful, but remember this is only at the discretion of the trustees.
The above provides a structured trust directing how the testator wants to protect the life tenant.
In regards to taxation we have a very different way in which these trusts work, as the Protective Property Trust is an IPDI trust. This means if any income is generated this is the Life Interest’s, and will be taxed at their normal income rate. In comparison with other trusts, where there is a need to be mindful of potential Exit charges or Anniversary charges, we do not have this problem with the use of IPDI trusts.
Therefore this makes the trust a very effective tool at first death and we can protect the deceased’s interest in their property.