CARE HOME FEES PROTECTION

We spend our working lives providing for our selves and our families. Clients often ask if there are any steps that can be taken to protect their home and their children's inheritance from the risks of care home fees in later life.

The purpose of this guide is to describe the legal steps that can be taken to mitigate these risks by including Property Protection Trusts in your Will.

Property Protection Trust Wills £650 per couple

This is a low cost way for couples to protect a 50% share of their family home. The price includes two Wills and Land Registry title amendments. The cost is less than one weeks average care home fees.

PROPERTY PROTECTION TRUST WILL

This is a Will Trust that only takes effect on death. To set up a Property Protection Trust both members of a couple make a Will. Rather than leaving the family home to each other on first death, they each leave their share of the home ( usually 50% ) in Trust where it is protected for the children ( or other beneficiaries of the Will ).

The surviving partner has the right to continue to live in the property rent free for life. This is often referred to as a 'life interest' or 'life tenancy'.

The terms of the trust are flexible and state that if the surviving partner:

(a) moves out ( possibly into a care home )and decides to rent the property, he or she will be entitled to the whole of the rent received. If appropriate, the rental income can be used towards care fees;

(b) moves home or downsizes, the Trust simply transfers to the new property. The new property is purchased in the joint names of the surviving partner and the trustees of the deceased partner's Will. The deceased partner's share of any money left over from the sale / purchase of the new property will be invested in the trustees' bank account. Any interest on the money invested can be paid to the surviving partner;

(c) sells the property, he or she will be free to spend his or her own share of the proceeds  (eg 50%) as he or she wishes. The deceased partner's share of the sale will be invested in the Trustees' names and the surviving partner will be entitled to receive any income from the Trust's investments for life;

When the surviving partner dies, the share in the property held in trust, (or, if the property has been sold, the half-share of the proceeds of sale and any capital), passes to the children or other people named as the eventual beneficiaries in the original Will.

Tenants in Common

To make Property Protection Trust Wills the family home must be owned in joint names as 'tenants in common' rather than as beneficial 'joint tenants'.

If you are unsure of the type of legal ownership you have, the likelihood is that you own the property as joint tenants as this tends to be the default method used by Solicitors and Conveyancers when couples buy property together.

Woods Wills can check this for you and arrange to change ownership from 'joint tenants' to 'tenants in common' if needed. This does not change anything else about your property ownership and it can still be done even if you have a mortgage as it doesn't involve the mortgage lender or affect the mortgage in any way.

Long Term Care

Following the death of you or your partner, if the surviving partner needs long term care in later life the Local Authority will means-test their assets to see if they can contribute towards paying for care. The 50% share of the property held in the Trust is legally protected from the financial assessment for care home fees. The other half share belonging to the surviving partner remains a capital asset and will be included in the Local Authority assessment for care fees.

Under current government rules Property Protection Trust Wills, based on home ownership as 'tenants in common', are not treated as deliberate deprivation of assets. By setting up Property Protection Trust Wills you can therefore legally safeguard at least 50% of your home for your children's inheritance.

Protection from Sideways Disinheritance

Property Protection Trust Wills can also benefit couples with jointly owned property who wish to mitigate their children's inheritance being lost through sideways disinheritance.

This can occur when the first partner dies and the surviving partner either changes their Will or re-marries and does not make a new Will. There is a risk that the new Will may not provide for step-children or that the new spouse inherits all of the Estate. By placing your share of the home in the Property Protection Trust you will have protected your legacy and ensured that it will pass to your children (or other chosen beneficiaries).

Drawbacks

If both partners need to go into care before either partner dies, the Will Trust will not have taken effect at that time therefore 100% of the property will be taken into account by the Local Authority in their financial assessment. On the first death, the deceased person's remaining 50% share of the property equity at that date will transfer into the Trust and will be disregarded for future care home fees for the surviving partner.

When does the Trust close ?

On the death of the second partner, the Property Protection Trust comes to an end and the assets (the share of the house and any capital transferred into the Trust) will pass to your beneficiaries.

What if we change our minds ?

As the Trust does not come into existence until the first partner dies, you can simply change your Will(s) before this time and remove the Property Protection Trust.

LIFETIME GIFT OF PROPERTY

Clients often ask if they can simply give their home to their children to avoid paying potential future long term care fees. Woods Wills strongly adviss clients do not transfer their home into their children's name to avoid paying any future care home fees. There are many risks involved in such action.

The 7 Year Rule Myth

Many people mistakenly believe there is a "7 year rule" that prevents the Local Authority from including the value of the home in their means testing assessment if the gift was made more than 7 years ago. This is a myth - there are no time limits on how far back the Local Authority can go when completing financial assessments for care home fees. The 7 year rule relates to inheritance tax and potentially exempt transfers (PETs) when gifts have been made 7 years prior to inheritance tax becoming liable. This 7 year rule does not apply to Local Authority means test assessments for care fees.

There are also risks that the value of the gifted property will be taken into account if any of your children should divorce or get into debt. Your children may be forced to sell your home to cover their divorce settlement or pay off their debts.

By transferring your property into your children's name without the benefits of a Family Asset Protection Trust you are giving away your control over the property leaving you potentially in a vulnerable position.

Example

Mr & Mrs Smith gift their home to their son Adam, aged 41. They want to ensure he receives his inheritance. A few years later, Adam's wife Carol divorces him and asks the court to include the value of the property in the financial settlement for the divorce. In the meantime, as Mr & Mrs Smith continue to live in the property, Carol instructs her solicitor to request that they pay rent.