It is estimated that one in four of us will be living in a care home during the final years of our life. Despite this knowledge, very few of us consider the financial implications until it is too late. Care home fees can cost on average £36,000 per year and if you have been prudent and managed to save for your later years, own your own home or have savings, it is likely that you will be liable to pay for these fees yourself. In a short amount of time these hard earned savings will be eroded so there is very little left for your children to inherit.
Many couples do not realise that they may be able to safeguard at least half the value of their property simply by changing the way they own their homes combined with having an effective Will.
Most couples own their property as ‘joint tenants’ which means that on either of their deaths the property passes automatically to the survivor. The survivor then owns the whole property and should they need to go into a care home, the whole value could be used to pay their fees. By changing the ownership to ‘tenants-in-common’, the first spouse to die could bequeath their share to whoever they like, perhaps their children or into a trust so that the survivor has the right to continue living in the property for life, then if the survivor were to need to go into a care home, they could only be assessed as owning a half share of the property to pay their fees. This effectively safeguards a half share of the property for the next generation.
Obviously, legal advice should be taken before transferring any assets, not only to ensure that they give effect to your wishes, but also to ensure they do not fall foul of the Deprivation of Assets Legislation. This legislation allows local authorities to recover assets that have been deliberately disposed of to avoid paying care fees.
We can provide the advice and guidance you need to effectively protect your assets. Please contact our team on 0113 320 5000.
Yes, but there are consequences.
If you transfer your home and the sole intention is to avoid the payment of care home fees, the council will deem the transfer to be a “deliberate deprivation” of assets. If the local authority believe a transfer has occurred, it can place a charge against the property so that care fees are repaid when the property is sold.
A transfer of property, in which you are living, to your children can be regarded by HMRC as a “gift with reservation”. This means that even after 7 years have elapsed, it can be treated as part of your estate for inheritance tax purposes. Some people think that they can avoid this if they pay a nominal rent to their children. However, the rules are extremely strict and it is necessary to ensure that the rent paid it a full market rent and that there are regular rent reviews. This is not a comprehensive list of the rules which would apply.
There can be other unforeseen consequences. For instance, should your child subsequently get into financial difficulty and be made bankrupt, this could result in the trustee in bankruptcy calling for your home to be sold. In addition, if your home is transferred into a child’s name and then that child divorces, their share of the home may form part of their divorce settlement.
Yes, this is possible. If the property is jointly owned by you and your spouse, it is essential that the property is held as tenants in common rather than joint tenants. It is possible that if you leave your spouse a life interest in your half of the property and your spouse subsequently goes into a care home that only half the value of the house would be taken into consideration by the local authority when carrying out an assessment. It is essential that the life interest trust is properly worded in the will and you should ensure, for it to be done properly, that you consult a specialist solicitor.