PROTECTING YOUR HOME
PROTECTING YOUR HOME
It is well known nowadays that if you or your partner end your days in a care home the local authority will seize your assets to cover your care fees. Plans are in England now to cap the amount they will take from an individual at £86,000 BUT THERE IS NO CAP IN SCOTLAND. Currently, the annual cost of someone in care is in excess of £50,000.
This means that no matter how hard you have worked all your life to pay for your home and no matter how much you may have paid in Nation Insurance contributions over the course of your working life, the local authority will take your home if you go into care.
Exceptions:
- You have a pension that will cover the cost of your care therefore as long as this continues to cover the rising costs of care (currently upwards of £50,000 per year) your home will not be touched.
- You have enough savings to cover the £50,000 plus per year and you have not taken steps to protect your savings from attack.
WHAT CAN I DO?
There are legitimate ways to protect your home from attack with proper planning. However, there is no “one size fits all” solution. We are aware that some firms will only provide a single solution to this problem meaning that regardless of it being the best advice, it will be the only solution offered, but we are able to offer you a choice depending upon your individual circumstances as we provide multiple solutions.
ARRANGE A FREE NO-OBLIGATION APPOINTMENT TO SEE WHAT YOU CAN DO.
One of the favourite products with our clients is Protected Property Trust.
Couples who own their home.
Couples who have children from a different relationship – this is very common and a pitfall that most people are unaware of.
If husband has a son from a previous marriage and wife has a daughter from previous. They have usual simple Wills in place. Mrs dies and everything they own together now passes to the husband. Husband falls out with the step-daughter or re-marries and he changes his Will to now leave everything to his son, completely disinheriting his step-daughter (this is called sideways disinheritance in law)
The benefit of a PPT trust is that the survivor can continue to live in the house until they die, but at least half the value of the estate is preserved for the children to inherit.
This is useful in case circumstances arise after one partner’s death, where their partner remarries, goes bankrupt, or there is a possibility of them incurring care costs.
This is a trust you put in your will so that the surviving spouse can continue living in your property, but the deceased’s share of the property is kept separate.
Therefore others, most commonly children and loved ones can inherit after the surviving spouse’s death. It is important to remember that your motive for setting up a PPT (Protected Property Trust) should always be for proper estate planning requirements to ensure that your children or loved ones are taken care of once you are gone. It is not just about avoidance of care fees are this would not work.
A trust is a legal tool you can use so that the property owner is different from the person who gets the benefit of the trust property.
A ‘trustee’ is someone who has the legal ownership of the property and controls it. A ‘beneficiary’ is someone who gets the benefit of the asset.
For example – husband and wife move their home (or part of their home depending on the type of trust) into a trust – husband and wife are the trustees (meaning that the trust owns the home now, but husband and wife own the trust).
Should husband or wife or both go into care the property cannot be touched as it is not legally owned by them – it is owned by the trust. Nothing can possibly affect the home while it is protected by the trust. Once both husband and wife eventually pass away the children or loved ones inherit everything that is in the trust – the home.
Example of how a PPT works
Mr and Mrs. A set up a trust over their property, which is held in joint names.
If Mrs. A dies before her husband, her share of the property goes into the protection trust. Her husband gets the rest of the estate.
Mr. A has the right to live in the property, and if he needs long term care, then Mrs. A’s share of the property is already in the property protection trust.
Therefore it cannot be assessed as capital to pay Mr. A’s care fees because it doesn’t belong to him.
After Mr. A’s death, the trust ends, and Mrs. A’s share of the estate passes to the beneficiaries, without them having to pay capital gains tax.
The government and the local authority want to ensure they get the right amount of tax and care home fees from everyone.
In cases where the Local Authority think you deliberately moved the interest in the assets to escape care home fees, they may apply to the court to transfer the property ownership to the spouse. Therefore they are set-up for family reasons rather than deprivation.
Whether this application is successful depends on when the transfer was made, especially if the trust was made when the health of the partner meant needing care was likely.
The court will use its discretion to consider all the circumstances of the case. We would always advise against this type of trust if you or your partner were going into care imminently.
A PPT will not have any impact on inheritance tax below the nil rate band. Therefore there is also no 7-year rule affecting them. Once they are set-up they are fully active.
The main inheritance tax allowance is £325,000 – this is called the ‘nil-rate band’. No inheritance tax is payable on assets you own at the time of your death up to this value. This rate will be in force until at least 5 April 2022.
In addition, you have a ‘Residence Nil Rate Band’ (RNRB). This can be used where you give property in your Will to a direct descendant (for example, a child or grandchild).
Currently, the RNRB is £175,000 (2020/21 tax year).
Each person, therefore, has an allowance of up to £500,000 or £1M if you are a married couple on which they will pay no inheritance tax (depending on how much of the RNRB they are able to use).
If the surviving spouse moves into full-time care, then the local authority will not look at any asset that comes within the trust.
They will only consider the half share belonging to the surviving spouse when assessing the person’s finances and how much of their own care costs they will have to cover.
Trustees are the people who control the trust and determine what happens to it. For a PPT, the trustees will normally be the survivor of the husband or wife and then at least one more person, usually your child or children. It is important that the survivor’s right to occupy the property is protected in the trust.
As the surviving spouse with PPT it is still very flexible and you can still move house or sell it completely should you wish. Your deceased’s half of the property will remain protected for their named beneficiaries. You cannot lose this to divorce, bankruptcy or care fees.
Trust Wills are a bit more complicated than a simple Will however, they are not extortionate. The costs may depend on your family situation, your wishes, the value of your home and the Proprietorship Section of your Title Deeds. ILAWSSCOTLAND work all this out for you as you will either know the answers to the above or we can obtain it from the Registers of Scotland on your behalf. The good news is that once you have set up your PPT, it lasts for your lifetime (even if you move house) and there are never any additional costs related to PPT.
As a guide, you should expect a total cost of £800-£1200 including registration fees and vat.
When you make a will as a couple, you can have a PPT set up. This is a good way to consider putting property in trust. We are able to discuss this with you and to ensure that it is the best course of action for your circumstances.
WHICHMONEY
What is a will trust? A will trust – also known as a testamentary trust – is created within your will to allow you to protect property you hope to pass on to your family. Trusts are legal entities that allow someone to benefit from an asset without being the legal owner. You create the trust and appoint a person to manage it – the ‘trustee’. The trustee manages the trust on behalf of the ‘beneficiaries’ – those who receive the income of the trust. Establishing trusts can give you an element of control over assets you wouldn’t have if you gave them away outright..
There are two main types of trust that you might choose to set up: a will trust, created upon your death, or a lifetime trust, which you establish during your lifetime. We explain the pros and cons of both.
Leaving property in a will trust
Unlike a lifetime trust, a will trust is only created once you pass away. You set up the conditions of the trust in your will and it activates upon your death. Will trusts are mainly used by couples to split ownership of the family home if they own it as ‘tenants in common’. Rather than leaving their share to each other, they each leave it to a trust, which comes into being on the death of the first partner. Until recently, will trusts were a common way of saving on inheritance tax (IHT). A couple potentially liable for IHT could split their estate into halves, both below the nil-rate band. However, since 2007 married couples and civil partners have been able to transfer unused IHT allowance to one another. As such, most couples no longer need to make this type of trust for inheritance tax purposes, though it may be used to ring-fence the deceased spouse’s share from care home assessments.
Find out more: inheritance tax on property
Will trusts and long-term care
If you use a will trust and your partner dies, you as the surviving spouse retain a right to live in the house. The part-owned by the trust is not counted. In this way, it’s protected from care home costs. Government rules (Charging for Residential Accommodation Guide) suggest that this arrangement will not be contested as ‘deliberate deprivation’, meaning that you have deliberately split your assets to avoid paying high care-home fees. Find out more: how to avoid inheritance tax – this guide explores a range of ways you can reduce the amount of tax due on the transfer of your estate.
Will trusts and inheritance
Another reason for setting up a will trust is to avoid ‘sideways disinheritance’. This occurs when the first partner dies, leaving children from the marriage who might reasonably expect to inherit some of the family estate in due course. If the surviving partner remarries and fails to make provision for their children in a new will, there’s a risk that everything will go to their new spouse instead. To avoid this situation, you could set up a life interest trust in your Will, which leaves your share of the family home to your children, while allowing your spouse to carry on enjoying the right to live the property.
You should seek legal advice before pursuing this option.
Read more: https://www.which.co.uk/money/wills-and-probate/passing-on-your-money/will-trusts-and-lifetime-trusts-aqmf66w4nu5w – Which?
