Protecting your property from care...

...after the first death.

Homes can be at risk to pay for care fees.

Most couples own their home jointly in a way which means that on death of one spouse the survivor automatically owns the whole house, which could be disastrous if they later needed full time care in an expensive nursing home.

The whole value of the house would be at risk to pay for that care, resulting in your children or beneficiaries losing that inheritance.

Can you do something about it?

It is possible to alter a Will after someone’s death. This is done via a Deed of Variation, which needs to be made within 2 years of the person’s death. For example, a surviving spouse who has been left everything can re-direct what happens to their deceased spouse’s property.

The Deed of Variation can return half to the deceased spouse’s estate.

The temptation may be to re-direct the deceased spouse’s half to the children.

That would provide no security for the surviving spouse, whose ability to remain in the property could be put at risk by the children if they die, get divorced, declared bankrupt, or even fall out with their parent. In addition, tax could then be due when the property is eventually sold.

Trust

The recommended route is to place the deceased spouse’s half into a Trust for the benefit of the survivor to their life.

The survivor still owns half of the house, and has the right to use the other half rent free for the rest of their life. The children’s circumstances cannot put their parent’s ability to occupy the house at risk.

What happens if the survivor goes into care in the future?

The survivor can only be assessed by what they own.

In reality, it is very hard to sell ‘half a house’ as there is no market for it, and the value could be assessed as being worth nothing.

Local Authorities have powers to place a legal change over a property, but only up to the value of the interest owned. Valuation advice is essential.

Can you secure the other half of the house?

Given that the house is usually the biggest single asset, and the idea of a local authority having a charge over the house is unattractive, consideration to securing the other half should be given.

If the survivor gives their half away to the children then their ability to stay there can be put at risk. In addition a gift could be treated as deliberate deprivation by the local authority and set aside if care was needed within certain timescales.

However, if the deceased spouse had savings or other jointly held assets, which have passed to their surviving spouse, then this could be used to buy part or the entire survivor’s half of the property. With a purchase for full consideration there is no gift or deliberate deprivation of capital.

How it works: an example

Suppose we have a married couple in their mid 70’s, Andrew and Barbara. They own a house worth £300,000 jointly; have individual savings of £100,000 each and joint savings of another £100,000. They have both made Wills leaving their estates to the other and on second death down to their children. Inheritance Tax is not an issue as their estates are below the combined threshold of £650,000.

Andrew dies and his entire estate goes to Barbara. Barbara is concerned about the risk of long term care. Barbara decides to put Andrew’s half of the house back in to his estate and to alter the will so as to leave it to her for life.

At the same time, she returns half the jointly held savings that have passed to her by survivorship to Andrew’s estate, and then alters the will so as to leave those savings plus Andrew’s original savings to her for life.

At the end of the exercise, the Trust has Andrew’s half share of the house, Andrew’s £100,000 savings, and Andrew’s £50,000 half share of the joint savings.

The trustees need to decide to invest the money. They offer to buy Barbara’s half of the house from her at the market price. Barbara’s ability to remain in the house is protected by her rights under the trust; Barbara receives £150,000 from the trust, in addition to retaining her own £150,000.

Barbara now has the £300,000 cash to spend or invest, and the whole property is safely within the trust. No gift has been made by Barbara.

With appropriate investment advice. Barbara can also invest the money in such a way so as to minimise the risk of the funds being taken towards her care.

Stamp Duty Land Tax would be due as the share being bought is above the threshold, and some £1,500 would be payable by the trust. This represents less than a 2 week stay in the average nursing home.

This article is written as a guide only and any action should not be based solely on the information given. If you require further professional advice concerning this or any other aspect of Wills, Trusts & Probate please contact our Wills, Trusts & Probate team on 01733 882800 or Henry Anstey at henry.anstey@hcsolicitors.co.uk .

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This article has been prepared for general interest and information purposes only; it does not constitute legal advice and should not be relied on as such. While all possible care has been taken in the preparation of this article, no responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by the firm or the authors.