If you are married or in a civil partnership, aged 55 or over and own your home jointly, then I have some important news for you. There are some simple steps that you can take now to legally protect more of your children’s inheritance.
As an experienced estate lawyer with over 25 years advising clients, I detail here the correct and legal way to plan your Wills. I will also debunk some of the common myths such as the ‘7 year rule’ and show you why you mustn’t simply “transfer the house to the children”.
This is something I hear most days from clients. But a lot of people, including my own grandmother, end up spending far too much of their wealth on care fees unnecessarily, simply because they were unaware of the following simple steps. If your spouse or partner loses mental capacity, or one of you dies, then we are unable to help. It is vital that couples seek advice now to guarantee that these steps are successful. Acting now could save your children at least £110,000 in addition to the £100,000 proposed cap based on average UK house price for England from the Office for National Statistics. If your house is worth more than £220,000 then you could protect even more of your estate.
The above illustration shows how you will be worse off without a Care Fee Trust Will, whether or not the Conservative’s manifesto proposals are brought into force.
A lot of people are still unaware that if they need care in later life, their assets will be means-tested by the Local Authority to help pay for these services. This goes back to the Community Care Act 1990 which came into force in 1993. I started my firm in 1991 so I have been around long enough to witness each new government make various promises about not including the home in a means test. But we are all living longer and the message from central government has been and continues to be that if you have assets then you must use those assets to fund your care.
If someone requires social care in later life, the Local Authority will look to use the assets of a person until they get down to a lower limit – when the Local Authority will take over the fees. The recent Conservative manifesto states:
“the value of the family home will be taken into account along with other assets and income, whether care is provided at home, or in a residential or nursing care home.”
It promises to:
“defer payments for residential care to those receiving care at home, so no-one will have to sell their home in their lifetime to pay for care.”
By saying ‘in your lifetime’ they, of course, mean that the money will be reclaimed from your estate on death so your children or other beneficiaries still lose out.
My own grandmother sadly passed away recently at the age of 92. My grandfather had died many years earlier and left everything to her. When she needed care in the last six years of her life, because my grandfather had left everything to her, the house and all the estate was counted in the Local Authority’s means test. Sadly she died just as virtually all her assets had been used to fund her care.
So what can couples do now to protect more of their home for the benefit of their children or other beneficiaries? The simple answer is not to leave their share of the house to each other in the first place – ‘on paper’ at least. You may have heard of the phrase tenants-in-common and this is part of the answer.
Does this sound familiar?
“We’ve made our Wills and we’re leaving everything to each other, then our estate will go to our children. If they predecease us, it will pass down to our grandchildren instead.”
These are known as a ‘Mirror Wills’ and it is very common for married couples to have them. If you’ve made Mirror Wills then we strongly advise that you review them now as they do not offer any protection for your assets from care fees, whether or not the Care Fee cap is introduced.
For example, my grandfather could have changed his Will and left his half of the house in trust to his children, stating that they couldn’t have it while his wife, my grandmother, was still alive. We call this a Care Fee Trust Will. If my grandfather had left his half of the house in trust to the children then when my grandmother subsequently received care in her later life she would only have been means tested on her own half of the house, but my grandfather’s half would have been safe. Why should he have to contribute his half when he didn’t receive any care?
Another important point is that (to the surprise of many of our clients) remarriage usually cancels a Will and makes the new spouse next in line to inherit, ahead of their own children! Protecting your half of the house in this way ensures that your children (or other beneficiaries) ultimately inherit when the survivor dies. Had my grandmother remarried after the death of my grandfather the whole estate could have passed sideways out of the family.
There are many myths about the steps people can take to protect their assets from being used like this. The main one is that a parent should simply sign their house over to the children now, so it won’t be taken into consideration for means testing. That’s just not true.
Local Authorities will actually look to see if you’ve deliberately ‘deprived’ yourself of an asset by giving property away, going back over any period in time. I hear of many people being advised to transfer their home to various schemes called ‘Asset Protection Trusts’ or similar and paying thousands of pounds in doing so. Again, we at April King do not recommend such schemes. I have children myself but as much as I love them would not want to transfer my house to them!
Remember, the Local Authority would look at any transfer you have made and can ignore or even cancel such a transfer of assets to children. Additionally if your child gets into financial difficulty, you could find yourself homeless.
Sometimes people think that if the gift is made seven years prior then the house is safe. This is not so as the 7-year rule only applies to Inheritance Tax and not Local Authority care.
In summary, the solution is to leave the ‘use’ of your half of the house to your spouse/partner but not the ownership as this would make the whole house vulnerable to a future care fees means test. The surviving spouse or partner can still live in the house and even move if they so wish but crucially at least half the house is then protected and will be in addition to any care fees cap of the survivor. The government cannot change or cancel these type of Will Trusts once they are activated on the first death.
At April King we offer a free information pack and an informal free first meeting to discuss clients’ needs. We try to make the whole process as easy and straightforward as possible, giving our clients the peace of mind of knowing that their affairs are in order.
Most clients say to us, ‘We are glad it’s all sorted, we don’t want to be a burden to the family’.
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