It's evident that people are living longer lives, often well into their eighties and beyond. However, with this increased life expectancy comes a higher risk of developing Alzheimer's, dementia and a greater need for care. Currently, there are 944,000 people in the UK living with dementia, a number expected to surpass one million by 2030 and 1.6 million by 2050. Shockingly, 1 in 3 people born in the UK this year will develop dementia in their lifetime.
Discovering the potential costs of care can be alarming for individuals, as they may face significant expenses that could require them to sell their family home to pay for their care. This would not only impact their finances but also reduce the inheritance they intended to leave for their family and loved ones. Understandably, many people are exploring options to protect their assets from care home fees and preserve their family homes, particularly many people are questioning whether they can put their home or other assets into Trust to avoid paying for care.
The cost of social care can be substantial, with hourly rates for in-home care typically around £20, and live-in carers costing upwards of £800 per week. Care home fees vary depending on the type of care provided, ranging from around £700 to over £850 per week.
Care fees are generally means-tested, with individuals having savings exceeding £23,250 ineligible for assistance from the local council. As a result, many are turning to trusts as a means of safeguarding their assets. However, it's essential to understand the limitations and potential consequences of using trusts for this purpose.
Using Trusts to Protect Your House and to Avoid Paying for Care: What You Need to Know
Putting assets, including your family home into a trust with the sole purpose of avoiding care fees can be considered a 'deprivation of assets' by local authorities. If deemed deliberate, this action may lead to various penalties, including treating the individual as still owning the asset, recovering the asset's value, or initiating legal proceedings.
While trusts can offer benefits in estate planning and asset protection, setting them up solely to avoid care fees may not be effective and could result in unintended consequences. Seeking professional legal advice is crucial to ensure that trusts are established in a manner aligned with individual circumstances and objectives.
Additionally, you cannot simply give your assets away, especially if you continue to benefit from them, as this too could be treated as deliberate deprivation. For example, if you gift your home to your son but continue to live there rent-free, this could raise questions about the motivation behind the gift. This scenario could also fall foul of the Gift with Reservation Rules for Inheritance Tax purposes and may have unintended Inheritance Tax consequences.
Putting Property into a Trust During Your Lifetime
This approach has both advantages and disadvantages that should be carefully weighed.
Pros:
Protection from Future Claims: Placing your property in a trust may protect it from certain claims, such as those from creditors or during divorce settlements.
Control Over Distribution: A trust allows you to control who benefits from the property and under what conditions, both during your lifetime and after your death.
Tax Planning: In some cases, putting a property into a trust may help with inheritance tax (IHT) planning, potentially reducing the overall tax liability on your estate.
Cons:
Potential for Care Home Fees Assessment: If you put property into a trust with the intention of avoiding care home fees, local authorities may still consider it as part of your assets under the 'deprivation of assets' rule.
Loss of Ownership and Control: Once the property is placed in the trust, you no longer own it outright. You must rely on the trustees to manage the property according to the terms of the trust.
Costs and Complexity: Setting up a trust can be costly, involving legal fees, and may require ongoing management and administration costs.
Taxation Considerations:
Inheritance Tax (IHT): Transferring a property into a trust may be treated as a chargeable lifetime transfer (CLT), potentially subject to IHT if the value exceeds the nil-rate band (£325,000). If the individual who sets up the trust (the settlor) dies within seven years, the property may still be included in their estate for IHT purposes.
Capital Gains Tax (CGT): If you transfer a property into a trust during your lifetime, it may trigger a CGT liability based on the property's market value at the time of the transfer. However, some reliefs may apply, depending on the circumstances.
Stamp Duty Land Tax (SDLT): SDLT may be payable if the property is transferred into a trust and the trust takes on a debt, such as a mortgage. The amount of SDLT will depend on the value of the property and the debt assumed.
Putting Property into a Trust During Using Your Will
Protective Property Trusts work when a couple own their home in individual shares (known as ‘Tenants in Common’) and the first of the couple to die puts their share of property in trust via their Will. The trust will give their surviving partner a life interest in their share of the property, which means they have the legal right to remain living in the property throughout their lifetime and can continue to enjoy the property as if they were the sole owner. On the death of their surviving partner, the trust would come to an end and the share of the property which belonged to their deceased partner would then pass to the beneficiaries stated in their Will, regardless of what might be in the Will of the second person to die.
In essence, the Will creates a Life Interest in the property (also known as a Life Interest Trust or Interest in Possession Trust). The purpose is to provide a beneficiary (known as the "life tenant") with the right to use or receive income from a property (or other assets) for the duration of their life, after which the asset passes to other beneficiaries (known as the "remaindermen").
Protective Property Trusts working in this way can have many benefits and can help prevent things like sideways disinheritance or the loss of property to pay any creditors or care fees of the surviving partner. It may be the right solution for second marriages where both partners have children from previous relationships who they would wish to inherit their share of the house, but where they also want to ensure that their partner can continue living in the property if they died first. Unlike some planning tools, you do not have to be married or in a Civil Partnership to benefit from Protective Property Trusts. If you are co-habiting with your partner and own a proportion of your property this could still work for you.
Pros:
Protects the Interests of Multiple Beneficiaries:
Ensures that a surviving spouse or partner can live in the property or receive income from it for their lifetime, while ultimately preserving the property for children or other beneficiaries.
Prevents Unintended Disinheritance:
Useful in second marriages or blended families, it guarantees that the surviving partner is cared for without risking the inheritance meant for children or other heirs.
Potential Protection Against Care Home Fees:
Only the life tenant’s share of the property (if any) may be assessed for care home fees, potentially safeguarding the portion of the property intended for other beneficiaries.
Cons:
Limited Control for the Life Tenant:
The life tenant does not own the property outright and cannot sell, gift, or use it as collateral without trustee consent, which can restrict their financial flexibility.
Potential Family Disputes:
Conflicts may arise between the life tenant and the ultimate beneficiaries (remaindermen) over property maintenance, use, or decisions affecting the property's value.
Ongoing Administration and Costs:
Requires ongoing management by trustees, which involves administrative duties, possible legal fees, and may require professional advice, adding complexity and expense.
In conclusion, while trusts can be valuable tools in estate planning, they should be established thoughtfully and with a clear understanding of their purpose and potential consequences. Putting your house into Trust for the sole purpose of avoiding paying for care could have unintended consequences and professional legal advice is indispensable in navigating the complexities of trusts and ensuring they serve their intended purpose effectively. If you are considering using trusts to protect your assets or plan your estate, contact us today for a free consultation tailored to your unique circumstances and goals. Click here to book a FREE consultation.
