PPTs: Concerns with Mortgages and Equity Release
PPTs and Mortgages
Should clients wish to use Protective Property Trusts (PPTs) in their Wills with a property that is subject to a mortgage, they should be aware that a share of the property cannot enter a PPT on first death as technically until the mortgage has been settled the clients do not fully own the property.
The most simple solution to this would be to ensure that both clients have life cover in place to cover the mortgage on first death. Alternatively, if the Residuary Estate would have enough assets to fully cover the mortgage on first death, the Executors could use the Residue to pay the outstanding mortgage off.
If on death there is still a mortgage on the property and neither of these are possible, the survivor does still have limited options;
- They can sell and downsize if the PPT has downsizing provisions; or
- Depending on the amount outstanding, the survivor could take out a cash loan to settle the mortgage.
If neither of these are possible, the Grant of Probate can be obtained, the property’s legal title will be transferred entirely to the survivor, and then they can (voluntarily) declare the Will Trust and place a restriction on the title in favour of half share of net proceeds to be held by the Will trustees. After the transfer of the half-share to the survivor with the lender’s consent, a full PPT declaration of Trust (by Executors, Trustees and survivor) and an RX1 (by survivor) would be needed. The title will then have a record of the Will Trust, but this could come at some expense to the Testator’s estate or the survivor themselves as professionals would be required.
PPTs and Equity Release
If clients have taken out equity release over the property during their lifetime, the possibility of including a PPT in their Wills is entirely down to their providers.
For some providers, including a life interest in their Will for the surviving spouse will be perfectly acceptable to them, whilst for others it would be seen as a breach of their terms and conditions.
Clients would therefore need to contact their providers directly to confirm whether a PPT would be possible.
Where a PPT has been set up over a share in the property, and the survivor wishes to obtain equity release over their own share it is most likely that a provider would not provide equity release for them. Our understanding is that if the property is not wholly owned by those applying for equity release, the provider would find it difficult to force a sale of the property or take possession of it should the client break any obligations in their contract with the provider.