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What is a property trust and how can it protect my wealth?

While we will always advise people to craft a watertight Will to protect their family’s wealth, it may form just one piece of the later life planning puzzle.

This is because of a common “inheritance trap” that could significantly reduce the value of an estate inherited by your children.

Here’s how it works:

A couple, known as the ‘Browns’, are married and have a house worth 250,000. Their succession plan is the same as most married couples: everything is passed to their spouse when they die, and then to their children when they both pass away.

Unfortunately, Mrs Brown dies one year later, leaving everything to Mr Brown, who is now worth £250,000.

However, Mr Brown becomes ill and can no longer look after his own wellbeing, and is moved into a care home shortly after his wife’s death.

But as Mr Brown has more than £23,250 to his name, he must pay for his own care home fees.

Assuming the cost of care is approximately £20,000 per year (which could be higher or lower depending on the level of care received) and he lives for 10 more years, the total cost of care comes to £200,000.

After taking care home fees into account, Mr Brown dies leaving just £50,000 to his children.

While this is still considered a hefty sum, most parents want to pass down as much of their hard-earned estate to their children as possible.

One way we can do this is through a property trust. A trust is a legal arrangement where you give assets (such as cash, property or investments) to someone else so they can be looked after for the benefit of a third person (such as a child).

A property trust can be used to protect at least half of the value of a family home so it can be passed to children when the time comes. This is achieved by leaving half of the family home in a trust and stating that the surviving partner can continue to live in the property for the rest of their life, but do not own the full value of the family home. This effectively ring-fences half of the value of the property, meaning it cannot be taken into account for means-tested care.

This type of arrangement is commonly known as a Property Trust Will.

If the Browns were to draft such an arrangement, Mr Brown would stop being charged for care after just five years (compared to 10 years without the arrangement), as the starting value of his estate was just £125,000.

He now leaves nearly £25,000 to his children, as well as the value of the property trust (£125,000), meaning his children inherit a grand total of £150,000 – a whole £100,000 more than they would have done had the Property Trust Will not been in place.

Of course, every family is different, and the value of your estate may be higher or lower than the Browns. Regardless, a Property Trust Will could help you protect and pass down more of your hard-earned wealth to your children.

For support and advice, please get in touch with our expert later life planning team today.