“Now you can help protect against your home being sold to finance care home fees in the future.”
It is not surprising that few of us have considered what the effect might be on our savings and investments, or even our home, if we ever needed residential care later in life.
Most people assume that we will pass on our assets to our children or other relatives in due course, yet this may not always be the case unless careful arrangements have been made to protect our assets from being taken to pay care home fees.
Thanks to advances in medical science and a general improvement in health and fitness, everybody is living longer. Even with this in mind, it is highly probable that one or even both partners in a household will require long-term residential care at some point in their lives. This is particularly so given that it is becoming much less common for elderly parents to move in with their children these days.
In recent years, it has become increasingly apparent that the State will only provide for those with little or no savings or assets. Everyone else will be expected to pay at least part, if not all, of his or her own costs. Currently, anyone with assets in excess of £23,250 (including the family home) would not be eligible for any state help with their residential care fees.
The net result is that anyone who owns their own home is unlikely to receive any assistance even though they do not have large amounts of cash assets.
Every week more than 300 pensioners are forced to sell their homes to pay the huge costs of residential care, denying their children an inheritance.
If you don’t have the cash readily available, local authorities can place a charge against the family home, which allows them to recover the money owing when the property is eventually sold.
Average residential care fees start in the region of £700 per week so it is clear how quickly assets can be eroded. Local authorities have often become the sole outright owner of a family home after the death of an elderly parent who had been living in a nursing home.
But there is a solution.
A ‘Property Trust’ is based around three basic elements: the basis on which you own your property, the Trust terms, and your Wills, which contain the Trust instrument.
The Property trust can only be created whilst both partners remain alive and the property must be owned as Tenants in Common. The Trust instrument is then included in both Wills but does not come into force until after the death of the first.
Upon the first death their share of the property, typically 50%, is placed into the Trust to be administered by the Trustees nominated in the Will, and this usually includes the surviving spouse. The Will also specifies who is to be the ultimate beneficiary of this share in the property and the Trustees duty is to protect the property for the benefit of the beneficiaries.
The surviving spouse, under the terms of the Trust, has the right to remain living in the property for the rest of their life. On the death of the second spouse the trust comes to an end and the property passes absolutely to the beneficiaries.
The surviving partner does not own the deceased’s share of the property. If that person then goes into residential care then only his/her share in the house can be included as part of the assessment of their contribution to care costs.
The surviving partner is given a ‘Life Interest’ in the deceased’s share of the property, so they are entitled to live in that property for the remainder of their life and the property cannot be sold without their permission. If the surviving partner chooses to sell and move to another property the proceeds from the sale can be used to purchase the second property and the terms of the trust remain over the second property. If there is any excess capital following a sale then the money is invested and the surviving partner can take the interest that is generated as an income.
The deceased’s share in the property is fully protected for the beneficiaries so even if the surviving partner remarries, the children’s inheritance is protected.
These two alternative options are less effective for different reasons:
1. You could do nothing and hope that you won’t need care in the future but why risk half the value of your home worth hundreds of thousands of pounds for the sake of a one time payment of a few hundred pounds? Saving this fee may prove to be a false economy as you leave yourself and children’s inheritance open to crippling costs later in life.
2. Give your assets to your family now. But beware the possible consequences! They may lose any benefits to which they are currently entitled or you could be vulnerable to family fall outs, divorce or even the bankruptcy of a loved one. Furthermore, if you subsequently do need care, the local authority may see this as deliberate deprivation of assets and still use the value in its assessment. This could mean the local authority refusing funding or even charging the new owners if the transfer occurred within six months of you needing care!
Making a Pair of Protective Property Trust Wills that is set up on first death is a cost effective and proven solution to safeguard your property.