I recently watched the documentary made by Good Morning Britain presenter Kate Garraway, following her husband’s battle with Covid-19. Unfortunately, 53-year-old Derek Draper, husband to, Kate Garraway, contracted COVID-19 in March 2020. As Derek still battles the effects of the virus, Kate recently spoke out about her financial struggles as Derek has fallen ill without a Lasting Power of Attorney (LPA) in place.
A lot of people in their 40s and 50s have not put an LPA in place. It is this situation, which is putting Kate, through a lot of stress as Derek’s name is on most of their assets. Without an LPA, no one can deal with Derek’s affairs during his incapacity, not even his wife.
“One of the practical problems – which a lot of people would’ve experienced if they’ve got the absence of someone in their life – like many things the car is entirely in Derek’s name, the insurance is in Derek’s name, a lot of our bank accounts.”
– Kate Garraway, wife of Derek Draper.
With an LPA in place, Kate would have been able to focus on caring for their two young children as well as dealing with the emotional difficulties of her husband being ill. Handling household finances and insurers would have been one less thing to worry about.
This is clearly not a situation anyone wants to be in; however, their story truly highlights the importance of an LPA to reduce the weight on your loved one’s shoulders.
For more information about these important documents please contact Richardson’s Wills on 01275 851056, email; email@example.com ; visit www.richardsonswills.co.uk
Ylenia Angeli, 73, was arrested after trying to remove her mother, 97, from east Yorkshire care home. Ylenia wanted to take her mother home with her rather than leave her in a care home during another period of uncertainty.
She told the care home that she was going to remove her mother and left. The home called the police, and Ylenia was arrested.
This situation arose because Ylenia only had Lasting Power of Attorney for property and finance. Ylenia didn’t realize that she had absolutely no authority over her mother’s care once she had lost mental capacity. If she had known she would have completed the health and welfare document as well.
(as reported in the Guardian on the 5th November 2020)
The health and welfare Lasting Power of Attorney is there to protect our best interests, at a time in our life when we are most vulnerable. Sadly, it has been overlooked in the past and its value not fully understood.
People who completed the old Enduring Power of Attorney often do not realise that it only covers property and financial affairs and has no bearing on decisions relating to your health and welfare.
Please don’t let this happen to you. We all need to have these documents in place.
Contact Nicola or Liz on 01275 851056 to arrange a consultation or email
The following information was in the Society of Will Writers Newsletter this week. I think it makes very useful reading and I will be putting this into a fact sheet but for now please read;
Property Protection Trusts (PPTs) otherwise known as Life Interest Trusts
Property Protection Trusts (PPTs) are by far one of the most common types of trusts included in wills.
The PPT is designed to take the first to dies share in the home and give someone else (known as the life tenant) a life interest in the property which will give them the protection of living in the property for the remainder of their lifetime or earlier if the trust specifies i.e. remarriage. It also ensures that if the survivor requires long term care, at least half the property is preserved for the benefit of their beneficiaries who are normally the deceased’s children.
These types of trusts are normally used for married couples or civil partners to ensure the share of the home will ultimately pass to the children at the end of the trust period whilst still ensuring the interests of the surviving spouse are protected.
For example, a married couple, who have not been married before want to leave their share of their house to their only child. They currently own the house as joint tenants. Their Estate Planning Consultant would sever the tenancy on the property registering them each as 50% owners. They then have their wills written to represent that if one died, their half of the property would be held on Trust for the benefit of their child but allowing the survivor to live in their share of the property for life or a specified period of time.
Joint Tenants or Tenants in Common?
Considering the point above with regards to severance, when considering a PPT, it is important to be able to distinguish the difference between tenants in common (TiC) and joint tenants (JT). The reason for this is that the property must be held as tenants in common to enter the trust.
What does this mean? To simplify, both TiC and JT refer to how a property is held or owned and this ‘ownership’ is registered with the Land Registry. Traditionally, when houses were purchased, the owners would have been registered as joint tenants. This would have meant that if one tenant died, the other tenant would have inherited the property by virtue of survivorship.
Holding the property as tenants in common means that each owner holds a share of the home which can be gifted via their Will. We would always advise the title is checked as there are occasions where clients may believe the home is held as tenants in common when, upon checking to verify this, the home is in fact held as joint tenants. Obtaining a copy of the title register is a small fee of £3.
When is it set up?
The trust would be set up on the death of the first testator. The legal title will then be transferred into the joint names of the surviving spouse (as an example) and the trustees.
It is important to add here that a property cannot enter a life interest trust on death as until the mortgage has been settled, they are not seen to own the property. The simpler solution would be to ensure that both clients have life cover in place to cover the mortgage on first death. If on death there is still a mortgage on the property and there is nothing in place, the survivor does still have limited options:
They can sell and downsize as the PPT has downsizing provisions; or
A cash loan could be taken out to settle the mortgage.
What is the point of a PPT?
The main reason for a PPT is the protection it provides for the beneficiaries i.e. the children, to ensure they are protected and ultimately receive a share of the home.
If the share of the home is simply gifted to the partner directly, this could cause a number of issues – the main one being sideways disinheritance i.e. the surviving partner remarries and the house passes to their new spouse under the Will. A PPT will enable the partner to stay in the home and will avoid the risk of the partner potentially disinheriting the children.
Likewise, if a share of the home is gifted to the children directly while the spouse or partner has the other share, this could cause issues in that the children may want to force step mum out of the property or insist that she pays rent to remain in the property. A PPT prevents this from occurring and essentially protects both parties’ interest. It is important to add the beneficiaries will only own the share of the home when the PPT ends either due to the death of the life tenant or earlier.
Can the property be sold?
A PPT can include powers allowing the life tenant to downsize and use the sale proceeds to purchase a substitute property for the life tenant to live in. The additional proceeds from the sale will remain in the trust and the life tenant can be paid an income from this. This can be useful where the life tenant may not be able to look after a large home as they grow older.
Can the life tenant end the trust sooner?
If the life tenant (Mr) decides to revoke his life interest, he would simply inform the trustees that he wants the life interest to end and the share of the home will be distributed to the beneficiaries. However, if the life tenant also owns a share of the property, this does mean there is a risk that the children, now owning a share of the property, could attempt to force a sale of the property.
If the life tenant decides to revoke their life interest, as it will be earlier than death, the distribution to the beneficiaries will be classed as a Potentially Exempt Transfer (PET) from his estate and therefore he will need to survive the 7 year period for it to not form part of his estate for IHT purposes.
Disadvantages of a PPT
The main disadvantage of a PPT is that this inherently comes with a loss of control over the property for the survivor, since they’d be limited in how they manage the property e.g. would need the trustees agreement to sell, would be unable to take out equity release if needed.
Probate would be required and there would be fees associated with setting the trust up and transferring the property to the trust. Probate is unlikely to be avoided completely unless all the assets are held jointly.
There is also the future IHT liability that this creates since assets in the PPT would be treated as part of the life tenant’s estate for IHT purposes. If they had directly inherited the property, at least they could have had the opportunity to carry out some lifetime planning to reduce this.
How is a PPT taxed?
For inheritance tax (IHT) purposes, the life tenant of the trust is treated as inheriting the trust property on the death of the testator. If the life tenant is the deceased’s surviving spouse or civil partner the spousal exemption will apply and delay any IHT until the life tenant’s death.
When the life tenant dies, everything in the PPT will be revalued and included in their estate for IHT purposes.
Where PPT’s are used between married couples or civil partners, the RNRB will apply if the share of the home passes directly to their direct descendants i.e. children.
Where there are unmarried couples it would be easier to explain using the example below:
Fred and Elsie own a property as tenants in common. They are not married. Fred has 2 children from an earlier marriage. If Fred includes a PPT in his will giving Elsie a life interest in the property until her death and names his children as the beneficiaries at the end of the trust, the RNRB will not apply. The reason for this is because the interest is seen as passing to Elsie and would therefore need to pass to her direct descendants for the RNRB to apply. If, however, Fred and Elsie get married, the RNRB will apply as stepchildren are classed as direct descendants.
Capital Gains Tax
There is no capital gains tax (CGT) payable on the testator’s death. The trustees will acquire the testator’s share in the property at the value at the time of death. There will be no CGT payable on the life tenant’s death.
CGT would need to be considered in the event the property is sold between the testator’s death and the life tenant’s death.
If a PPT covers the main residence, this will allow the private residence relief for CGT to apply and ensure that no CGT will be payable if the property is sold, e.g. to downsize.
Where the property is the life tenant’s main residence, the trust will not be creating any income. However, if the property is rented, cash is released due to downsizing or if the property is not the life tenant’s main residence, the trust will produce an income which will need to be taxed.
The life tenant is entitled to all income of the trust and is generally taxed on the basis that it belongs to the life tenant. However, this will depend on whether the trustees receive the income and then pay it to the life tenant or whether the trustees mandate the income so that the life tenant receives it directly. If the trustees mandate the income, it will be the responsibility of the life tenant to declare and pay the income tax due
I was browsing through a newspaper last week and stumbled across a problem page. The person who had written in wanted to challenge their stepmother’s Will.
The problem was an all too common one. Her father had gone onto remarry after her mother’s death. He and his new wife then made simple mirror Wills. So, when he passed away a few years later he left everything, including his late wife’s possessions to his new wife.
She then decided to change her Will reducing the percentage of the estate her stepdaughter received in favour of her own children. She even gifted jewellery belonging to her husband’s first wife to her friend!
Don’t leave your lives work on trust
Naturally the stepdaughter was upset and hurt that her mother’s jewellery had been gifted to a stranger. She was equally upset that she was now only going to inherit 25% of her parents’ home. It had been her father’s intention for her to inherit the house and any saving to be split equally between her and his stepchildren.
He had simply trusted his wife would honour his wishes.
It is so easy to protect against this scenario. A carefully thought out Will with good advise. Allowing for gifts of personal items, considering every scenario, looking at how property is owned and if necessary, taking a more protective stance.
For most people the family home is the biggest asset. By owning it as tenants in common, meaning you own half each, it is possible to ensure that the 50% share of the first to die always goes to the intended beneficiaries regardless of how the survivor chooses to live the rest of their live.
In this scenario he could of left his new wife a right to occupy his home. This would of provided the security of somewhere to live until she passed away without her actually owning it. This would of protected his daughter’s inheritance and saved her a lot of heartache.
There has never been a better time to put your affairs in order. We have reduced our fees by 50% until the new year.