Lifetime Property Trusts

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    Lifetime Property Trusts, sometimes called Family Protection Trusts, are being offered to many households at the moment, often by cold calling telesales people, and my reason for writing this article is to advise caution prior to proceeding.

    The advantages that they are quoting go along the lines of:

    • Protecting your home from the cost of care
    • Speeding up the Probate process
    • Potentially reducing the cost of Probate if Probate fees go up
    • Avoiding sideways disinheritance
    • Keeping the property in the family

    Often the sales pitch used is very enticing, using the high cost of long term care as an example, they say  that the cost of setting up such a trust is the equivalent of a month’s fees in a Care Home.

    However, please beware, I’ve written below some of the potential pitfalls if you chose to go down this route and the reduced benefit of some of these claims.

    Lifetime Property Trusts
    Lifetime Property Trusts

    Protecting your home from the cost of care

    The problem here is that it is not effective for the local authority. Any gift someone makes in their lifetime they will need to defend to the local authority.
    Local Authorities, post Covid particularly, have massively ramped up their aggression in terms of dealing with and challenging people’s decision to put things into trust. They are much more enthusiastic now as they are determined to make that a problem or challenge for families. So if you have done this in your lifetime you will then have to justify this action and explain why you have done it to the local authority who are not going wear ‘I wanted to avoid the delays of probate’. They are likely to look at that and take a view that it is a disproportionate response and treat you accordingly. In fact that is almost their go-to solution now and so the work is rendered ineffective. (Advice taken from Adam Johnson of Heritage Will Writing, an expert in care costs).
    On top of this there is a potential tax problem being created if a Discretionary Trust is used, particularly if the property is over £325,000 as any value within the trust above that is accumulating a tax bill of 6% every ten years. The problem is the only asset in the trust to pay the tax bill is the property and therefore there is no ability to pay the tax bill and settle it. Which means the family would have to put more money into the trust as a further gift to settle the tax bill which in turn will mean the tax bill in the following ten year cycle will be even higher as they have added to the Trust.

    Speeding up the Probate process

    Although this is quoted as a benefit, when a loved one dies and the property is in Trust, gaining a couple of months is fairly pointless unless the recipients of the inheritance are about to go bankrupt, the cost of this, as stated above, will probably be viewed by a Local Authority as a disproportionate response to the problem at hand.

    Potentially reducing the cost of Probate if Probate fees go up

    There has been talk in Government about changing the cost of Probate, increasing it as an estate gets larger and removing the house could reduce the final fee but, again, will the cost of setting it up outweigh the saving?

    Avoiding sideways disinheritance

    This may be true if a Discretionary Trust is used and is allowed to continue beyond the first generation who placed the property in trust as they last for 125 years. so if the asset’s value remains inside the trust and a beneficiary gets divorced, the value of the inheritance inside the trust will be protected and cannot be taken into account during divorce settlement calculations. However, if the original house owner had died and left a similar Discretionary Trust in their wills, this would have had the exact same effect and putting such a trust in your wills is an awful lot cheaper than the prices being quoted for the Lifetime Property Trusts that we’re discussing here.

    Keeping the property in the family

    This is mentioned because of the Discretionary Trusts ability to last for the 125 year term, and so, as in the previous comment, the same type of trust written into your will at a much cheaper cost will do the same job.

    Inheritance Tax

    There also lies another problem with these trusts, as they are generally Discretionary Trusts, they do NOT satisfy the HMRC rules for the use of the new Residential Nil Rate Band (RNRB) and so some families could potentially pay up to £140,000 more tax than if they had not used such a trust.

    Health

    Before anyone should even consider these trusts there are other criteria that need to be satisfied as well.

    • It’s wise not to consider these trusts too early on in life as they may restrict your future plans
    • You should also have a medical carried out to check that you have no existing ailments
    • You must not have any care requirement on the immediate horizon

    So as you can see, it is advisable to think very carefully before embarking on such a project, if you’s like to talk to me about these issues and/or your wills with these Trusts in then please feel free to call.

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    Matt Walkden Will Writer

    About Matt Walkden

    I am a Professional Will Writer and I offer a small number of other products that complement my Will Writing such as Lasting Power of Attorneys (LPA’s), Fixed Price Estate Administration, often called Probate and some Property Products such as changing a family home from Joint owners to Tenants in Common.

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