Protective Property Trust (PPT)
A Protective Property Trust is designed to provide a right of occupation and income whilst protecting the capital for your chosen beneficiaries. The person who is granted these rights is known as the Life Tenant. Protective Property Trusts are commonly used in Wills where a couple are co-owners of a property and wish to ensure that the surviving co-owner has full use and enjoyment of the trust asset.
A Protective Property Trust will:
• Provide you with peace of mind that your chosen beneficiaries will inherit your share of the property by providing you with control over the eventual distribution
• Protect from sideways disinheritance. This occurs where a surviving co-owner forms a new relationship and changes their Will in favour of the new partner and any step children.
• Protect the trust asset from third party creditors for means testing. The Life Tenant is not deemed to own the asset in trust and it is therefore useful in cases of divorce, bankruptcy and local authority assessment.
• Provide flexibility for the Life Tenant by allowing them to purchase a new property and attach the protection of the Trust to that property.
• Be efficient for inheritance tax purposes for spouses as the trust asset is treated as passing directly to the Life Tenant which therefore qualifies for spousal exemption.
Flexible Life Interest Trust (FLIT)
A Flexible Life Interest (FLIT) is a discretionary trust similar in nature to a PPT but with greater flexibility for the trustees and beneficiaries. A FLIT provides a right of occupation and income to the surviving spouse / partner as Life Tenant, but varies from a PPT by also allowing the trustees to also appoint out capital from the trust at their discretion. FLIT’s are one of the most commonly used trusts in Wills today because they provide the flexibility to cope with the structure and circumstances surrounding modern families and are able to take into account future changes and the addition of new family members.
A FLIT will:
• Provide a right of income and capital to a surviving spouse / civil partner.
• Preserve Inheritance Tax allowance where a spouse / civil partner is the Life Tenant.
• Protect the trust asset from third party creditors including potential bankruptcy, divorce settlements and local authority assessment.
Discretionary Trust (DT)
A discretionary trust is when money or other assets from your estate are left in trust. The trust is managed by appointed trustees who decide which people become beneficiaries and when and how they should receive inheritance from the trust.
You can give some guidelines for the trustees to follow. That is why it is standard practice to leave a letter of wishes alongside your Will. This is a letter in which you can advise when, and in what circumstances, you would like your beneficiaries to receive their assets. The trustees can take these wishes into consideration but are by no means bound by them, if they feel it is in the best interests of the beneficiaries.