What are Lifetime Property Trusts?
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.
Advantages of Lifetime Property Trusts
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.
Protecting your home from the cost of care
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.
Why you should consider your health before setting up a Lifetime Property Trust
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.
