Property Preservation Trust

The priority for most of us when we die, is ensuring that our loved ones inherit from us, and that our assets pass safely to them, without risk of being lost. This may not always be as simple as we would wish. Assets may be ‘lost ‘to our loved ones in a number of ways:

• If our spouse/partner remarries after our death, our children may lose their inheritance to the new spouse.
• If our spouse/partner needs long term care after our death, our property and assets may be used to pay the costs.
• Inheritance Tax may be levied on our assets after second death, reducing the inheritance for our children.

If we wish to secure our assets for our loved ones, we need to consider which type of planning in a carefully constructed Will is most appropriate for our circumstances.

The Estate Preservation Property Trust is a most useful tool in ensuring our loved ones inherit our assets as we wish. Since the Pre-Budget Report of October 2007, this type of planning must become much more important and relevant. As those married couples with estates up to £600,000 are much less likely to require Inheritance Tax planning, their property may be at risk of not passing to their chosen beneficiaries.

In simple terms, the Estate Preservation Property Trust allows couples to ‘Will’ their portion of the property on their death to their chosen beneficiaries, thereby preventing the loss of the inheritance as described above. The portion of the property ‘Willed’ on first death is then held in Trust for the chosen beneficiaries until second death.

It also means that as the surviving spouse/partner has the use of the whole of the property after first death, even though half has been gifted to the chosen beneficiaries in Trust, the relevant Nil Rate Band available on second death, for Inheritance tax saving purposes has not been reduced. So, the survivor will still have twice the prevailing rate available on their death.

How does it work?

Wills are written including an Estate Preservation Property Trust in each case, which leaves the share of the property ‘in Trust’ for the chosen beneficiaries. This Trust protects the interests of the survivor, allowing the survivor to live in the property until death, or until he/she cohabits or remarries.

If the survivor goes on to remarry, he/she cannot leave the whole of the property to their new spouse, as a portion is already owned by the Trustees on behalf of the chosen beneficiaries. The survivor can also move house if he/she so wishes, using the whole of the proceeds towards another property, or raise capital by purchasing a smaller property, a greater proportion of which will be owned by the Trustees.

Click here for a more detailed explanation of the trust and a case study.