With the rising cost of care home fees, you would be right to be concerned about how to protect your estate. After all, you want to minimise the impact any care home fees will have on the inheritance you wish to pass to your children.
Currently, homeowners with assets of £23,250 have to fund their care themselves. This has caused distress for many elderly people and their families, who face having to sell their family home or empty their savings accounts to pay for their care.
Many financial planning measures have emerged which claim to help people to protect their estate from the cost of care home fees. However, you must be cautious about these measures. If the local authority sees your actions as a deliberate attempt to avoid care home fees, they can rule that you have deprived yourself of your assets and will still hold you liable for your care home fees.
Fortunately, there are some viable options for effectively safeguarding your estate without breaching your Local Authority Guidelines:
Tenants in Common
If you own your property with your partner, you will usually do so as joint tenants. This is a legal term which means that each partner equally owns the property. When you or your partner passes away, the deceased’s share in the property passes automatically to the surviving party.
A better alternative is to hold a property as tenants in common, whereby you and your partner owns a portion of the property. In this case, when one party dies, their share of the property passes under their will instead of automatically to their partner.
Now if your will leaves your share of the property to your children while specifically giving your partner the right to remain in the property, the local authority cannot take the full value of the property into consideration when evaluating your assets. This also protects your property being sold to fund care home fees.
You may choose to gift your assets to your children to protect their inheritance.
However, this decision should be made with caution. Transferring your property to your children outright can leave you financially insecure, even if your children don’t intend it. If your children have creditors, they can make a claim on your property. Or if one of your children gets divorced, your property could be transferred to their ex-spouse during the divorce settlement.
An alternative to gifting away your assets is to set up a trust in favour of your children. So, what is a trust?
A trust is a legal relationship which is recorded in a trust deed. A trust has its own bank account, assets and tax reference. It will have to be registered with the HM Revenue & Customs and is required to pay income tax, inheritance tax and capital gains tax.
The trust is governed by trustees who look after the property on behalf of your named beneficiaries. Your beneficiaries can be your children or anyone else you specify. The trustees do not own the property outright. Unlike with gifts, your beneficiaries do not become owners of your property until your death and your property is safeguarded from the beneficiaries’ creditors or other third party claimants.
For more advice on how to protect your estate from care home fees, talk to our experienced team at Probate London. We advise our clients on all aspects of probate and we can help you too. Call us on 020 8017 1029 or drop us a line at firstname.lastname@example.org.