Will planning questions are often easiest to understand when viewed through a practical scenario. This article considers a recent client enquiry examining a Protective Property Trust vs Right to Occupy, with names and certain details amended for confidentiality.
The client initially asked about including a Protective Property Trust (PPT) in a will. However, her instructions went beyond the scope of a typical PPT. She wanted her husband to have the right to occupy the property, but without any power to move into a replacement property and without any entitlement to income if he stopped living there.
The Background
The client owned two properties before her marriage. Her concern arose partly from family experience. Her mother had also owned a property before marriage, but following divorce the former husband received a share of that property.
The client wished to preserve her property for her children.
Her intentions can be summarised as follows:
- her husband should be able to live in one of the properties after her death;
- he should not own the property outright;
- he should not be able to force a sale or require the trustees to buy a replacement property;
- he should not receive rental income or other income from the property; and
- when his occupation ends, the property should pass to her two children.
Protective Property Trust vs Right to Occupy: understanding the difference
A Protective Property Trust is commonly used where someone wants their spouse or partner to benefit from a property after death, whilst preserving the capital for children or other beneficiaries.
In many cases, a PPT gives the surviving spouse a right to occupy for life. It is also common for the drafting to include flexibility, for example:
- a power for the trustees to sell and buy a replacement property (often relevant if the survivor wishes to downsize); and
- an entitlement for the survivor to trust income (for example, if the property is rented, or if cash is released on downsizing and invested).
That flexibility is often sensible. If a surviving spouse is living alone in a large property after the first death, it may be appropriate for the trustees to sell and purchase a smaller, more suitable home. The trust can then continue over the replacement property and any surplus cash.
However, it is important to note that this “standard” PPT flexibility does not suit every client. In this scenario, the client wanted the husband’s benefit to be limited to occupation of one property only, with no ability to move, and no right to income. In this type of case, a more limited right to occupy is likely a better fit.
How a limited right to occupy can work
A Will can provide that the husband has a right to occupy a named property after the client’s death. The legal ownership would be held by trustees, but subject to the husband’s right of occupation.
The drafting can then set clear conditions for continued occupation. For example, it may provide that the husband may live in the property for as long as:
- he occupies it as his main residence;
- he pays the usual outgoings;
- he keeps the property insured; and
- he keeps the property in reasonable repair.
If the client does not want the husband to have the ability to move, the Will can make clear that the right applies only to the named property, with no power to move.
If the intention is that the husband is not entitled to rental income, the drafting can provide that the right ends if he stops occupying the property. In that event, the property can then pass to the children.
The limits of Will planning on divorce
It is important to distinguish between death planning and lifetime financial claims.
A Will trust takes effect only on death. It does not prevent claims arising during the client’s lifetime, including claims on divorce. If the client and her husband were to divorce, the family court would consider their financial circumstances.
The fact that a property was owned before marriage is relevant, but it does not automatically exclude the property from consideration. A Will trust can control what happens on death. It is not, and cannot be, a shield against lifetime claims.
Inheritance Act 1975 risk
A further consideration is the Inheritance (Provision for Family and Dependants) Act 1975. This allows certain people, including a surviving spouse, to bring a claim against an estate if the Will does not make reasonable financial provision for them.
A very restricted right of occupation can increase the risk of a claim as the surviving spouse receives no capital, no income, and no ability to move to more suitable accommodation. The risk is likely to be higher where there is limited provision or no provision for the spouse elsewhere in the estate.
This does not mean the client cannot proceed with the structure she wants. It does mean the planning should be supported by a clear record of her reasoning.
In practice, this is best addressed through:
- good attendance notes, and
- a carefully prepared letter of wishes explaining the rationale.
The client may wish to record that the properties were owned before marriage, that she wishes to protect her children, that her husband has his own resources, or that other provision has been made for him. Clear evidence of her decision can be important if the Will is later challenged.
Protective Property Trust vs Right to Occupy: Conclusion
The comparison of Protective Property Trust vs Right to Occupy highlights the importance of not defaulting to familiar drafting without fully considering the client’s instructions. Whilst a PPT is often appropriate, it brings with it income rights and flexibility that may not fit the client’s intentions. In cases where occupation is intended tied to a specific property, a right to occupy can more suitable.
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