Property Trusts in Wills – The Family Home
A frequent question raised by couples when making a Will is often regarding protecting the family home. This may be in relation to residential care fee planning or ensuring children are not disinherited by subsequent relationships or on second or third marriages.
Traditionally, the family home would be left to a surviving spouse but increasingly, including a trust over the family home is becoming standard practice for couples who jointly own property.
Most couples own their property as ‘joint tenants’. This means that when one of them dies the property will automatically pass to the survivor, like a joint bank account, regardless of what any Will says.
It is, however, possible to change the ownership of property to ‘tenants in common’. This means that you each own an identifiable share in the property (eg 50%), which can then be dealt with under a persons Will, enabling flexibility on inheritance and the opportunity to build in some protection.
What is a Property Will Trust?
Rather than leaving your share of your property outright to the survivor on your death, a person’s ‘share’ in a property is placed into a trust which allows the surviving partner to continue to benefit from your share during their lifetime, but ultimately specifies who inherits your share on their death.
During the period that the trust is in place, the survivor would be responsible for all the outgoings in respect of the property such as water, gas, electricity, council tax etc. The survivor must also keep the property in a good state of repair, and it must be insured in the names of the survivor and the trustees.
The arrangement can be flexible, with a right for the survivor to be able to move property for example or to bring the right to enjoy the property to an end if they were to remarry or cohabit.
How Can This Help With Care Fees?
If a property owner requires residential care that isn’t NHS funded, the Local Authority will undertake a financial assessment to determine your liability to pay for that care. Fundamentally, you will usually be expected to pay for this care if our capital exceeds £23,250. The value of a property will be included in the assessment unless a small number of exemptions apply. The main exemption is if a surviving spouse still resides in the property, in which case the whole property is disregarded.
Whilst it is possible that both spouses or civil partners will need care at some point, it is statistically more likely that a sole survivor may go on to need care after their spouse or partner has died, without that partner there to support them at home. If the surviving spouse or partner has inherited the property outright and subsequently requires care, then all the property will be taken into account, and potentially used to fund the costs of care.
A Will Trust over your share of the property means that the survivor doesn’t own all the property and only their share of the property can be considered for the payment of care fees. Ultimately this could save 50% of the property for your nominated beneficiaries.
How Can It Help Protect Children?
If your spouse or partner remarries after your death or, if either or both of you have children from a previous marriage, then there could be unforeseen consequences if you leave your estate on your death to your spouse outright.
If a surviving spouse remarries after your death or cohabits with a partner for a period of 2 years or more, some or all of your estate, together with that of your spouse’s, could pass to their new spouse or partner. In such circumstances, the new spouse or partner may disinherit your children without the same feeling of obligation to ensure they inherit.
If you have children from a previous relationship, you may want peace of mind that your own children will not be disinherited whilst making sure your surviving spouse is financially secure. Unless your estate is substantial, this can be hard to achieve practically, as there may be insufficient assets to go around. If you leave all your estate to your spouse outright, then your assets could pass ultimately to their children or nominated beneficiaries rather than your own.
By having a property trust Will, you can make provision for your new spouse for their lifetime, whilst also ensuring your assets ultimately pass to your children on your spouse’s death. Such arrangements can also be used where a property is owned by one person only to make provision for a partners who’s home is also in the property.
Example One
Peter and Mary own 1 Smith Street worth £200,000. They have Wills leaving their entire estate to the surviving spouse and then between their 3 children on the second death. Peter dies in 2018. In 2021 Mary requires care and the property is sold to fund her care. On her death the children inherit £14,250 between them.
Had Peter and Mary made Wills including property trust, in the above scenario, the children would have inherited £114,250, being half the house value plus the £14,250.
Example two
James and Sarah own 5 Apple Court, worth £250,000. They each have 2 children from previous marriages. Sarah dies and James inherits the property. James subsequently enters a new relationship with Alice. This causes a breakdown in his contact with Sarah’s children who do not like Alice and fall out with James. James makes a Will leaving his estate to Alice but with provision for his own children to inherit on Alice’s death. Sarah’s children inherit nothing.
If Sarah had made a Will leaving her half of 5 Apple Court on trust for James but then specified her children inherited on his death, in the above scenario Sarah’s children would not have been disinherited and received 50% of Apple Court on James death.
Summary
For a number of our clients, the family home will be the main asset they own and intend to pass to their intended beneficiaries on their death. Arrangements for property under a Will can be tailored to your exact circumstances. We would encourage you to speak to one of our specialist Wills team who can provide you with tailored advice in relation to property trust under a Will and whether it is appropriate for you to consider including one as part of your planning.
With specialist solicitors at both our Darlington and Northallerton offices, our team are experienced in both writing Wills and including Will trusts where required. For more information, please contact your local Clark Willis office.
