There is more than one way in which a person can protect a property against the threat of enforced sale to pay for care fees, such as giving your home away as a gift or taking out a special insurance policy. This article is designed to look at ways in which you can protect your single greatest asset from the Government taking it away from you to pay for care fees.
Ownership of the Property
Essential to the working of Property Trust Wills, is the way in which you own your property. Most couples own their home as joint tenants. This means that when one of them dies, the property will automatically pass to the survivor – regardless of any intention under a Will.
However, it is possible to own your property as tenants-in-common, which means that each co-owner owns a separate share in the property which they can then dispose of during their lifetime, or on death under a Will or intestacy.
This type of property ownership (tenants-in-common) has the important advantage of allowing half of the property to be passed on to say the children on the death of the first partner. The remain partner will be allowed to stay in the property whilst ever they are alive and so this makes the whole arrangement work well.
Should the surviving spouse require long term care, the local authorities could only take into account their share in the home, and not the whole.
Example – Mr and Mrs Brown own a property at 25 Maple Crescent in joint names and it is decided that they write their Wills in a special way and they prepare a special trust. This protects both of their shares in the property in respect of long term care calculations. The first thing to do would be to change the property from being jointly owned to being tenants-in-common.
A special Will would need to be written so that Mr and Mrs Brown create a life interest in each of their 50 percent ownership in the property for the surviving partner, with the subsequent sale proceeds passing in equal shares between the children. The surviving partner to move home at this point if they so wished. Any monies realised if the surviving partner decided to take this option would be available for their lifetime would be become the property of the children once the second partner died.
Let us assume that Mr and Mrs Browns house at 25 Maple Street is worth about 200,000 and that Mr Brown is the first to pass away. Mrs Brown decides that she wants to move to a smaller dwelling valued at say 100,000. She could sell 25 Maple Street and use Mr Brown’s trust – valued at 100,000 to purchase the new house. Mrs Brown could then spend the remaining 100,000 as she wishes and this could even provide her with an income during her lifetime.
Alternatively, Mrs Brown could own half of the new property and the Trustees would own the other half of the property. Mrs Brown could then do as she wishes with her remaining 50,000, and the Trustees could invest the remaining 50,000 from Mr Brown’s’ “trust”, in say a bond, and Mrs Brown would have the income from that bond during the remainder of her lifetime. On Mrs Brown’s death, Mr Brown’s half share in the property and the money in the bond would pass to his two children.
Should Mrs Brown need to go into long term care, then the local government could only take Mrs Brown’s assets into consideration and not Mr Brown’s other half share in the home or the money in the investment. This will effectively protect the remaining half of the trust holdings. Although it is technically possible to realise Mrs Brown’s half share in the property, it is virtually impossible to sell half a property and so it is unlikely that a forced sale can go ahead in these circumstances.
Could the surviving partner move to another home or must they remain in the same property?
Mrs Brown can move and this is one important flexible option to keep in mind. A home can often become too large for a single persona and it is important to make sure that flexibility is maintained.
Would it be possible for children to make me leave the property?
No. The terms of the trust dictate that they will only inherit when both of you die.
Will a Property Trust and special Will help with estate taxes ?
No. As your partner has the right to use your half of the home, it is regarded that they still own the property for the purpose of tax calculations.
Can the Government change the rules to make this invalid?
No. In your Will you are entitled to do what you like with your half of the home. The Government may in the future change the rules relating to care costs, but this would of course then only apply to the survivor of you – the one most likely to need care.
A Property Trust and specialist Will is not a “loophole’, but is common sense applied to estate planning. If the surviving partner needs care once you have died, it is not sensible planning to allow them to inherit the whole value of the estate, just before the local authority is about to value the remaining assets.
Only half ? Why not put the whole property into the trust?
If one spouse/partner owns the property in their sole name then yes, you could put the house in trust for the children and allow the surviving spouse/partner to live in it for the rest of their lifetime. If the surviving spouse/partner requires care after your death then the whole of the property is safe.
It is possible to set up a Will Trust which only activates the trust on death. We would not recommend this as this would mean that if your spouse/partner dies before you and you need care beforehand, the whole property could be at risk because the Will Trust would have only commenced on the first death. By this time care cost fees could have drained your estate. It is seen as better to protect half the home than to lose all of it. It needs to be further mentioned though, that given current thinking, local authorities have deemed it impossible to only sell 50 percent of a property.
But what if we don’t have children – to whom could I leave my share?
You can include anyone or any organization in your trust. Maybe other relatives or chosen charities or perhaps a combination of both. The choice is yours.
Will this protect the home if we both require care?
The answer is yes – as the trust is established on signing and not on death, this will have the effect of protecting half of the home immediately. Given the depth of current thinking (which is unlikely to be changed in the medium term at least), it is so impractical to sell half a home that it is not thought to be feasible by local authorities.
And finally – Your home is often the main asset that you have to pass on to your children after your death. If the thought of selling your home to pay for care fees concerns you, then consider setting up a Property Trust and an associated Special Will to protect your home.