Property Protection Trust (PPT)

 

The Property Protection Trust (PPT) is a trust that can be written into your Will to protect your share of a property. It is usually written in to protect your main residence, but it can be used for any property that you may own but only one house or share of a house can be included in one trust. It is important to remember that this protection only comes into play upon death.

 

Who can benefit from having a PPT included in their Will?

 

If you own your property solely and you wish for someone to continue living in the property after your death or if you own your property with another person

 

The PPT creates a life interest trust for someone in your Will, meaning that they can continue to live in your property (or your share of the property) for the remainder of their life whilst ensuring that the asset is ring-fenced for your intended beneficiaries. Unfortunately, the PPT is not suitable for a single person who does not have a partner or cohabitee to leave the life interest to.

 

Can this be achieved without the PPT?

 

In essence, the same can be achieved with a standard Will without the trust but there are events that we may not foresee that can change this course of action. Typically, when a couple own a property jointly and one partner dies, their share passes to the surviving partner. This may seem like the most simple and practical option, but very often it can result in problems such as:

 

• Remarriage and disinheritance. After one partner dies, the survivor may go on to form a new relationship, civil partnership, or marriage. A civil partnership or marriage revokes your Will and if a new Will is not created, the law of intestacy would send a large portion – if not all – of the estate to the new partner/spouse and not to your intended beneficiaries.

• Care fees. Once the survivor owns the whole of the property, the entire value can be included in any care fee assessment. This commonly results in a legal charge being placed on the property, so that any care fee payments accrued can be repaid on death. Beneficiaries stand to miss out to the local authority.  Bear in mind, that this Trust cannot be included solely for this reason.

 

However, by having a PPT written in your Will, your share of the property passes into the trust so regardless of what the surviving party does at least your share of the property is ring-fenced for your intended beneficiaries which may not happen without the PPT.

 

Flexible Life Interest Trust (FLIT)

 

The Flexible Life Interest Trust (FLIT) is a combination of two trusts that are written into your Will to protect your solely owned assets. There is one trust that is usually written in to protect your main residence and another trust that will capture any other assets you own solely or a tenants in common share of on your death. This could be additional properties, investments, bank accounts etc but it is important to remember that this protection only comes into play upon death.

 

Who can benefit from having a FLIT included in their Will?

 

If you own your property solely or if you own your property with another person and you have other assets in your own name and you wish for someone to continue living in the house after your death but also want them to have access to any income that your other assets may produce.

 

The FLIT creates a two life interest trusts for someone in your Will meaning that they can continue to live in your property (or your share of the property) and can access income/interest from any capital assets for the remainder of their life whilst ensuring that the assets are ring-fenced for your intended beneficiaries.

 

Unfortunately, the FLIT is not suitable for a single person who does not have a partner or cohabitee to leave the life interests to. The FLIT also does not protect any jointly owned assets such as bank accounts etc as these pass to the surviving owner absolutely.

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Can this be achieved without the FLIT?

 

In essence, the same can be achieved with a standard Will without the trust but there are events that we may not foresee that can change this course of action. Typically, when a couple own a property or any other assets jointly and one partner dies, their share passes to the surviving partner absolutely. This may seem like the most simple and practical option, but very often it can result in problems such as:

 

• Remarriage and disinheritance. After one partner dies, the survivor may go on to form a new relationship, civil partnership, or marriage. A civil partnership or marriage revokes your Will and if a new Will is not created, the law of intestacy would send a large portion – if not all – of the estate to the new partner/spouse and not to your intended beneficiaries.

• Care fees. Once the survivor owns the whole of the property and other assets, the entire value can be included in any care fee assessment. This commonly results in a legal charge being placed on the property, so that any care fee payments accrued can be repaid on death. Beneficiaries stand to miss out to the local authority.  Bear in mind, that this Trust cannot be included solely for this reason.

 

 

However, by having a FLIT written in your Will, your assets pass into the trust so regardless of what the surviving party does at least your assets are ring-fenced for your intended beneficiaries which may not happen without the FLIT. It goes further than the Property Protection Trust (PPT) as the FLIT includes more than just the main residence.

 

 

Right of Residence (RoR)

 

The Right of Residence Trust (ROR) is a form of Immediate Post-Death Interest (IPDI) Trust incorporated into a Will. The ROR allows you to give a chosen beneficiary a right to reside in a specified property either for their lifetime or for a specific time period. This beneficiary is called the occupant, and they never own the property absolutely: they only have the right to live in it for the chosen duration or until a specified event. When the occupant no longer has the right to benefit from the property – when they die, move out, or when the trust ends – the property passes on to beneficiaries. These beneficiaries are named in the will at the outset.

 

In what circumstances would you consider a ROR Trust?

 

• This trust is often used when a person wishes for a particular person to have a right to live in a given property without them ever owning the asset absolutely. For example, a person living with an elderly relative might not want that relative to become homeless should they outlive them but still wish for their own children to ultimately inherit the property. A right of residence trust could accommodate this.

• Similarly, a person living in their solely owned property with their partner may wish to use a right to reside to enable the partner to continue living in the property for a given period, while still protecting the capital for other beneficiaries. In these or similar situations, the occupant does not have the right to sell the property. If they move out, the trust ends and the property passes to the remaindermen.

• The trust can also be drafted to terminate in accordance with the testator’s wishes: e.g., a set period of years, until children attain a certain age, or until the occupant remarries. Where a person wishes to grant such temporary occupancy to another for any reason, a ROR trust is often appropriate.

 

 

 

Discretionary Trust

 

A Discretionary Trust is a trust that leaves the distribution of trust property (either capital, income, or both) to the absolute discretion of the trustees.

As with other will trusts, the standard Discretionary Will Trust does not come into effect until death at which point the trust is set up and the assets are appointed into the trustees’ names. Trustees have the right to retain and hold assets, or to distribute some or all assets to anyone from a given list of named beneficiaries, as they see fit. These beneficiaries are chosen by the person making their Will, but they have no absolute right to inherit from the trust. Instead, they are “potential” beneficiaries, who stand to inherit only if the trustees decide to make distributions of capital or income.

 

Because of the extent of these discretionary powers, a letter of wishes is always created to help the trustees understand the testator’s intentions and the rationale behind the creation and running of the trust. This is initially created by APS according to instructions provided to us but can be changed in the future if the need arises.

 

 

In what circumstances would you consider a Discretionary Trust?

 

Owing to the wide-ranging powers conferred to trustees, Discretionary Trusts offer a great deal of flexibility to cater for changes in the circumstances of beneficiaries. Such circumstances cannot always be foreseen at the time of creating the Will so including the Discretionary Trust can be a powerful planning tool if there are concerns about a beneficiary or beneficiaries.

 

Here are some examples of when a discretionary trust could be useful:

 

• Where one or more beneficiaries cannot or should not be trusted to handle large sums of money, the trustees can instead ensure that funds are used appropriate and safely on their behalf.

•  Where it is likely that one or more beneficiaries may be involved in divorce proceedings, then passing their share(s) into a Discretionary Trust can sometimes prevent these being included in financial settlements. (Note: the court has the power to set aside such transfers if it deems it appropriate)

•  Where you intend to make a series of lifetime gifts to beneficiaries and they would ultimately wish for them to receive an equal amount on death but considering any gifts already been made. Rather than keeping the will up to date, the trustees can instead assess the position at death and make the appropriate decisions to result in equality.

• Where you wish for a disabled or vulnerable beneficiary to benefit, or if you consider them incapable of handling their own money. Trustees can then apply funds in an appropriate manner or purchase items directly for the beneficiary.

• When it may not be considered appropriate for a beneficiary to inherit until later in life (over 25) and a minor’s trust is no longer a viable option.

•  To protect inheritance for lineal descendants or for planning for future generations.

 

Bear in mind that the taxation of Discretionary Trusts is complex.