Trusts and Care Home Fees
Can I protect my house and assets from being used to pay for if I or my spouse/partner have to go into long term residential care? The answer is that if you transfer your assets to avoid care home fees, this is rated as deliberate deprivation and the Local Authority will have the right to try and recover the care costs. BUT and it’s a big BUT there is nothing to stop you transferring assets to a Trust to avoid someone else’s care costs.
What Often Happens?
A couple own a house worth £200,000 and having savings of £60,000. The husband/partner dies first and everything goes to the widow/surviving partner and then hopefully to the children/grandchildren. The widow goes into care and the house and savings are vulnerable for care costs.
What Can You Do?
We can arrange it so that the husband’s half of the house (at the very least) does not pass to the wife but is there for her benefit. Should the wife go into care, that half of the house is protected. If the wife’s assets are below the tariff income limit of £23,250 and soon to be increased to £118,000, she will get help from the Local Authority. In the example above the wife would start off with tariff income support.
Right to Occupancy
You can have two wills with a “Right to Occupancy” section included in the wills. When the first spouse dies, his or her half goes to the children but the survivor is given Right to Occupancy, and capital passes to the survivor. If the survivor goes into care, half of the house is protected, but not the capital that has passed to the survivor and is therefore vulnerable for his/her care costs.
Property/Asset Protective Trust Wills
Here when the first spouse dies that one’s half of the estate (house and capital) goes into a Asset Protective Trust (Discretionary Trust) for the benefit of the survivor and the children. The survivor is a Trustee and has a large element of control over that half of the estate. If the survivor goes into care the first half of the house (which is in Trust) is protected. Under this plan the whole of the house would gain from Capital Gains Tax exemption
In both the above cases if you own your property as Joint Tenants we would need to do a Severance of Tenancy to change that to Tenants in Common
Family Property Protection Trust/Probate avoidance Trust
Here a couple set up two FPPT (Lifetime Discretionary Trusts/PAT) and transfer the house and most of their assets into their respective Trusts. The purposes of these Trusts is not to avoid your own care costs but to avoid your half passing to the survivor and then being used for the survivors care home costs.
There are many additional benefits to this type of Trust, namely:
• Avoids Probate costs (Around 3% - 4% of the value of the estate))
• Sideways Disinheritance – protects inheritance for children if survivor re-marries
• Dependant Relatives Claims – dependant relative’s claim will not succeed unless the claim is made within six years of putting the assets into trust
• Children inheriting at the wrong time – maybe a child has problems and might be irresponsible with money then the Trustees can distribute as and when need arises.
• Children’s inheritance tax – avoids children’s asset being taken above the nil-rate band if the inheritance takes them above the £325,000 threshold
• Incapacity – if you don’t have a Lasting Power of Attorney and lose capacity your Trustees can deal with your financial affairs.
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