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Traditionally, trusts were the preserve of the wealthy, used to ensure that a family seat passed from father to son. These days, greater home ownership means that trusts are very commonly used to protect interests in property.
A general concern is to ensure that children or other chosen beneficiaries will benefit from the value of the property. The worry is that they could lose out if a surviving spouse or partner needed residential care or were to re-marry. Trust provisions in your Will can avoid these dangers and ensure that your loved ones will be provided for as you want.
Most jointly owned property is held as ‘beneficial joint tenants’. This means that when one owner dies, the property immediately passes to the surviving joint owner. At the instant of death, the deceased joint owner has no further interest in the property and so can’t bequeath it in a Will.
A ‘beneficial joint tenancy’ may be converted into a ‘tenancy in common’. The effect of this is that the owners will generally then have a right to half the value of the property or, if they have contributed differing amounts to the purchase, in shares proportionate to their contribution. They can then bequeath this as they choose. This allows the creation of property trust wills that leave the share of the first to die in trust for children or other beneficiaries while providing the surviving owner the right to continue living in the home until death, or to sell and move to a new property as they wish.
The effect is to protect value in the property for children or other beneficiaries against claims arising later, such as a surviving spouse
Henrietta is divorced and has two children from the marriage. There was a clean break settlement in the divorce. She owns the former matrimonial home and now lives there with her new partner Henry, who never married but has one child from a previous relationship. The couple are not married and have a further child of their own. Henry owns a property which is rented out. They have some savings, equally divided between them.
Their current assets are:
Because Henry and Henrietta are unmarried, when one dies the other has no automatic right to inherit the other’s estate. Since they have lived together for more than two years, a claim could be made under the Inheritance (Provision for Family and Dependents) Act of 1975, but this would involve an expensive Court action with no guarantee as to the decision.
They want all three older children and their youngest child to benefit from their individual assets, but it would cause problems for each of them if they simply give their individual assets to children on first death. However, they are concerned that if they make Wills leaving all assets to each other, the children of their earlier relationships could end up with nothing.
The solution is for each of them to create property trust wills leaving their individual assets in trust for the benefit of the surviving partner and for their individual children.
Henry’s Will places his own house and savings in trust for Henrietta during the remainder of her life, so that she can continue to receive the rental income and interest on the savings. On her death those assets will be divided between his two children. Henrietta’s Will makes similar provision for her house and savings, meaning that if she dies, Henry and the children can continue living in their home. Later, when Henry dies the value of the house and savings will be divided between her three children.
This solution also avoids Inheritance Tax. The value of the individual estates is below the threshold, so no tax is due when the first of them dies. If they had left all assets to each other, the value of the amalgamated estate would exceed the threshold and tax would then be due on the death of the second partner.
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