How can you leave your property to your children but allow your new partner to stay living in the house? By using a Property Will Trusts for 2nd marriage

 

Case study

DAVID owns a house worth £300,000. He bought it after his divorce settlement. It’s in his sole name. He has 2 adult children from his previous marriage.
David meets Julia and she now lives with him. Julia also has 2 children. David and Julia are considering getting married.

If David dies and he hasn’t made a will, all his assets (including his property) will legally pass to his children. The property will be sold as part of the probate process, and Julia will have to move out and be left with nothing. (Julia may be entitled to make a claim as David’s dependent, although this is a costly, slow, emotional process with no guarantees and usually causes families to fall out and argue).

If David and Julia marry, then his assets pass to his new wife (although assets up to £270,000 only, with remaining assets shared 50% to his wife and 50% equally between his children). In David’s case, this means the property may need to be sold, to release £15,000 to his children with the remaining amount of £285,000 for Julia. When Julia subsequently dies, the share she received from David’s estate will pass to her own children, not to David’s.

David wants to want to leave his property to his children AND ALSO give security to Julia to remain living in the property. How can he do that?

Option 1 - Standard Mirror wills
David and Julia could both prepare ‘mirror wills’. This leaves everything to the surviving partner on 1st death, and then they both agree how to share the estate when the 2nd person dies. For example, David and Julia could prepare ‘mirror wills’ leaving everything on 2nd death equally between all 4 children. However, the survivor, eg., Julia, could simply decide to change her will after David’s death and remove his children. Or, if Julia is the surviving spouse and she marries again, the mirror will becomes invalid and David’s children receive nothing (maybe Julia’s children receive nothing also!). If Julia needs to move into a care home, she is the owner of the property which will need to be sold to pay for care fees, and there is likely to be very little left for either her or David’s children.

How can a Will Trust make it fair to everyone?

Option 2 - Life Interest Benefit
David can prepare a Will with a Property Protection Trust. The will is written in such a way that if David dies before Julia, it allows for his property to pass into a trust, rather than directly to either Julia or his children. The trust says that Julia has a legal right to remain in the property for life, and the house cannot be sold without her agreement. It’s even possible for the trustees and Julia to agree to sell the house and buy another one that Julia can live in instead.

If Julia re-marries or needs to move into a care home, the property she is living in belongs to the trust, not her, so it’s protected and not at risk. When Julia dies, the assets from the property trust are shared equally between David’s children, as he stated in his will.

Option 3 - Right of Residence
Alternatively, David can include a Right of Residence in his will. This also allows for the property to pass into a trust, rather than directly to either Julia or his children. The trust is usually restricted in some way, rather than simply allowing Julia to stay in the property (or another one) for life. The trust gives Julia a legal right to remain in the property for specified period of time (decided by David and stated in his will), eg., for 10 years, or until she’s 65, or until she re-marries. If she wants to move out before that time, the trust will end, the house will be sold and passed on to David’s children.

Note: With Will Trusts, the property is not held in a trust while the owner is alive. It does not reduce liability for Inheritance Tax. On death, it will be necessary to obtain a Grant of Probate and complete the property transfer into the trust. This usually requires professional estate administration (such as APS Legal & Associates Probate). On 2nd death the property can pass fully to the relevant beneficiaries.