Providing for future care needs
Can your Will help secure your home against care fees?
Care provision in the UK is changing. Local Authorities may use your assets (if they are above £23,250.00) to help towards the cost of care, resulting in your home potentially being put at risk.
There are 3 possible routes to help pay for care
1. Through your Will
Most couples own homes as joint tenants and leave everything to each other in their Will so that on the death of the first spouse everything passes to the survivor. In this situation one solution is that the home may be sold to pay for residential care.
To stop this happening and to prevent the house passing automatically to the survivor, couples can alter how they own their property to enable their respective shares to pass under their Wills.
First they must sever the joint tenancy. Wills should then be altered so that the half that belongs to the first spouse is left in trust for the survivor for life. Ownership of the home will then be between the Trust and the survivor who still has the right to live in the property.
With the Trustees’ consent the surviving spouse can sell and move to a new home. If the money from the sale is higher than the Trust’s initial share it can be invested to provide an income which could be used to pay for care fees, leaving the Trust’s initial capital safe.
The benefit of this is that only the surviving spouse’s share in the house can be taken into account when the Local Authority are assessing the payment of care fees but the Trust’s share cannot. Only the surviving spouse’s right to the income of the trust capital can be taken into account.
In reality, if the Local Authority want the surviving spouse to sell the house they would not be able to as there is not much of a market for half a house!
Local Authorities can demand payment for care once the property has been sold from the surviving spouse’s share of the capital but the Trust capital is protected to pass onto children and beneficiaries.
However, it should be noted that this does not work if both of the couple require care at the same time.
2. Through your savings to secure the other half of the house
The Trust route mentioned above will secure and protect the first Deceased’s share of the house, but still leaves the survivor’s share vulnerable. In certain circumstances further protection can be given.
If the Trust is given not just the half share of the house but also some or all of the first to die’s savings then it will be in a position to purchase the survivor’s share of the house. The survivor will then have cash and with appropriate advice may be able to invest that in a way that is itself protected from use for care fees. The survivor will still have the right to reside in the house for as long as they wish.
With the changes to stamp duty care must be taken that the purchase by the trust does not cause the 3% SDLT surcharge to apply.
3. Is it easier to give your share of the house to your children on first death?..
...Not necessarily, as a child may:
- They may divorce;
- They could be made bankrupt; or
- They may even fall out with you.
In any of these situations, the house could be sold without the surviving spouse’s consent. Moreover, if the child does not occupy the house there might be CGT to pay on any gain in the child’s share of the house on a subsequent sale.
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