Protecting Your Family Home: Life Interest Trusts and Property Protection Trusts Explained

Why People Worry

For most people, the home is their most valuable asset and the most important thing they will leave behind. Wanting it to pass to your children, rather than to a new partner, to creditors or to care home fees, is one of the most common reasons for estate planning.

The worry is sharpest for couples in a second or later marriage, for anyone who fears the surviving partner may remarry, and for families thinking about care home costs.

How Property is Normally Held

Before considering a trust, you need to know how your property is owned. In England and Wales, jointly owned property is held in one of two ways:

Joint tenancy. When one owner dies, their share passes automatically to the surviving owner. It does not pass under the will and cannot be put into a trust on death.

Tenancy in common. Each owner holds a defined share. On death, that share passes under the will and can be put into a trust. This is the form of ownership you need if you want a trust to protect your share.

If you own as joint tenants, you will probably need to "sever" the joint tenancy as part of the planning. This is a simple step, but it must be done correctly.

The Life Interest Trust

A life interest trust is the most common way of protecting the family home. On the first death, that person's share of the property passes into a trust. The surviving partner is the "life tenant" and has the right to live in the property for the rest of their life. When the surviving partner dies, the trust assets pass to the final beneficiaries, usually the children.

This does several things at once. The surviving partner is secure in the home for life. The first partner's share is protected against remarriage and other risks. The children's inheritance is fixed. There can also be inheritance tax advantages.

Property Protection Trusts

"Property protection trust" is a marketing term, not a legal category. It usually means a life interest trust over the family home, set up in a will. Sometimes it means a discretionary trust, which gives the trustees wider powers.

Care Home Fees

This is the most sensitive and most misunderstood area of estate planning. A local authority can treat a transfer of assets into a trust as "deliberate deprivation of assets" if it was done to avoid care fees. If so, the authority can assess your finances as though the transfer had never happened.

That does not mean trusts are never appropriate. But avoiding care fees should never be the main reason for a trust. A trust set up years before any care is needed, for clear estate planning reasons, stands in a much stronger position.

Practical Considerations

If you are considering a property protection trust, bear in mind: the mortgage (the lender may need to consent), stamp duty (a transfer can trigger stamp duty land tax if there is mortgage debt), trust administration (including registration with HMRC), and flexibility (can the surviving partner downsize?).

Getting It Right

Aaron takes a balanced and open approach. He will discuss your options frankly, explain what a trust can and cannot do, and only recommend one if it is genuinely in your interests.

This guide is general information, not legal advice.