subject: Avoid The Effects Of Long Term Care Fees By Protecting Your Property [print this page] There are multiple ways in which you can protect your property against the consequences of long term care fees. Examples are gifting away your home or taking out a long term care insurance policy.
However, in this article we will take a look at how you can protect your share in the family home from the effects of long term care should this become necessary later on in life.
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.
Owning property as tenants-in-common has the critical advantage in that the deceased spouse/partner can leave their share of the home in trust for beneficiaries of their choice whilst granting the surviving spouse/partner a life interest in the home for the surviving spouse/partner's lifetime.
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 Smith own number 1 Example Street as joint tenants, and they decided to prepare Property Trust Wills to protect their shares in the property from the effects of long term care.
Firstly, the ownership of the property would need to be altered from joint tenants, to tenants-in-common.
A Will would then be prepared for Mr and Mrs Smith which would create a life interest in their respective shares in 1 Example Street for the surviving spouse, with the eventual net sale proceeds passing equally between their two children. The surviving spouse would be given the right to move to another property if that is their wish, and any monies realised from the sale of the property would be invested by the trustees of the Will and the survivor would have the benefit of the income from those investments for the remainder of their lifetime.
Let us suppose that 1 Example Street is valued at around 200,000 and that Mr Smith passes away first. Mrs Smith then decides that she wishes to move to a smaller property valued at 100,000. Mrs Smith could sell 1 Example Street and use Mr Smith's "trust" of 100,000 to buy the new home. Mrs Smith could then do as she wishes with her 100,000.
Alternatively, Mrs Smith could own half of the new property and the Trustees would own the other half of the property. Mrs Smith could then do as she wishes with her remaining 50,000, and the Trustees could invest the remaining 50,000 from Mr Smith's' "trust", in say a bond, and Mrs Smith would have the income from that bond during the remainder of her lifetime. On Mrs Smith's death, Mr Smith's half share in the home and the money in the bond would pass to his two children.
If Mrs Smith needed to go into care, then the local authorities could only use Mrs Smith's assets and not Mr Smith's half share in the property or the money in the bond, as this is protected for his children.
Can the surviving co-owner move, or will they be stuck in the same property?
You can move, and many people choose to, particularly if the home becomes too large for one person. It is important that the terms of the trust are flexible.
Can the children force me out of the property?
No. The terms of the trust dictate that they will only inherit when both of you die.
Do Property Trust Wills help with Inheritance Tax?
No. Since your spouse/partner has right to use your half of the house, this is regarded as though he/she owns the property for the purposes of calculating inheritance tax. The sole benefits of the Property Trust Wills are to protect against possible future care cost fees or to protect your share in the property for beneficiaries of your choice.
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 person most likely to require care.
Property Trust Wills are not a legal "loophole", but straightforward common sense. If your partner needs care after you pass, why would you want to leave him or her your whole estate outright shortly before he or she is about to be means tested?
Why half - why can't I put the whole of the house in 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.
However, if your spouse/partner passes away first and it is you that requires care, the entire property is at risk since the trust is only activated by your death, by which time, care cost fees will have swallowed your estate. Protecting half of your home is better than losing it all.
We don't have any children - who would I leave my share to?
You can include anyone or any organisation 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?
No. The trust is activated on death and not at the moment of signing. However, since it is more often only a survivor that requires care, you are as a minimum protecting one half of the home.
And finally...
You 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 making Property Trust Wills to protect your home.
