If you pass away, and either have no will or a standard mirror will, your property generally passes straight to your spouse, so they now own all the assets.
Should the surviving spouse then remarry, any previous will would be invalid.
After the new marriage if your surviving spouse should pass away before their new spouse then any joint property transfers to their new partner.
This could mean that the assets that you wanted to go to your children after your partner’s passing could go to a complete stranger. If the new spouse/partner then decides to leave all the assets to his/her children then your children could end up with absolutely nothing.
Even families who have always got along can have problems later on.
The Solution is Simple
It may first of all be important to say what shouldn’t be done. A common mistake is to say “I’ll just sign my house over to my children. Transferring your house over to your children is sometimes seen as an easy way to avoid the problem. It is in fact an exceptionally bad idea!
Many problems can arise which could leave you in an even worse position – For example:
- If your child divorces, your house will form part of their divorce settlement. A forced sale could arise to pay out the ex-spouse’s share.
- Your child may become bankrupt (perhaps as a result of a business failure or credit card debt) They could then force a sale of your house to pay off the creditors.
- If your child dies before you, your house may pass to an unintended person (e.g. to your son-in-law or daughter-in-law).
- Your child could borrow against the house putting the property at risk.
- Your child could sell the house without your permission.
- Your child could pressure you to enter care before you are ready to do so.
- Your child may have to pay Capital Gains Tax on the sale proceeds.
Sever the Tenancy on the family home to be held as Tenants in Common.
A Protective Property Trust comes into force on first death. The share of the deceased’s property is passed into a Trust rather than straight to a beneficiary.
The Trust is set up to accept the share of the property and at the same time a Lifetime Interest is created for the remaining owner of the other share of the property (normally the remaining spouse or partner). This lifetime interest ensures:
- The remaining owner can sell the property if they want to, in conjunction with the trust.
- The remaining owner can buy another property with the proceeds of the sale of the original property.
- The remaining owner can borrow any cash in the Trust with or without interest as deemed by the Trustees (remember that the remaining spouse/partner would normally be beneficiary and Trustee).
- The property cannot be sold without the permission of the lifetime tenant.
- The lifetime tenant cannot be evicted from the house for the rest of their lives.
- The ultimate beneficiaries of the Trust would normally be the children after second death.