Many of us work very hard throughout our lives with the goal of owning our own home and building up some savings for retirement. Eventually we would like to leave something for our children and grandchildren after we are gone.
However, if you require Long Term Care and have £23,250 or more in capital including your home you will be expected to pay the full cost of accommodation, board and personal care. These costs can literally wipe out your entire savings and your property may have to be sold to pay those fees.
When anybody enters long term care they are initially “means tested” and ALL of their assets are taken into account. Only those who have very little (currently under £14,250) will escape the costs of care.
How do we protect those assets?
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.
You could also be accused of a ‘Deliberate Deprivation of Assets’. The City Council states:
“If you dispose of any capital, assets or savings before you go into a care home or when you are already living in one, we are required to investigate the circumstances. If we decide that a significant factor in your decision for the disposal was to avoid or reduce the amount you have to pay towards your care home fees, this may result in the financial assessment being completed as if you still have this asset.”
So, what can be done?
Firstly we need to look at how your property is owned. The majority of people who buy a property with another person have the ownership arranged as Joint Tenants. This may be the correct way to own a property in certain circumstances but for many people this is not the answer for either Care Cost issues or Inheritance Protection.
You need to Sever the tenancy on the property and change the ownership to Tenants In Common, so that each now owns an identifiable 50% (percentages can vary if required). You then set up mirror wills, each transferring the share of the property to a Trust. This can safeguard your home.
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.