Continuing from our last blog, which identified why giving your home to your children (in order to avoid the cost of care and tax) may not be such a good idea, we’ll spend a little more time on two solutions to the problem – writing a will and setting up a trust.
Firstly, it’s vitally important to make a will. Taking stock of your assets and following the necessary steps to prepare a will, makes you think critically about how much you own, how it would be best protected now and who you would like to leave it to. A will also speeds up the process of probate (administering a person’s estate after death), reducing the strain of coping with bereavement for those family and friends you leave behind.
Secondly, setting up a trust is a widely recognised solution to resolving a number of inheritance problems. The process involves placing your home, and sometimes other assets, into a trust. In the case of a couple, a trust is formed on the death of the first partner (as their home cannot be forcible sold with one partner still lives in it). For single people it involves setting one up right away. The process involves transferring the legal ownership of your home to a small group of trustees (of which you may be one), who will be bound by your instructions when the trust is established. As you no longer own the assets outright your home cannot be sold to fund your care. But as the sole beneficiary of the trust you are still free to use the trust assets as you wish (e.g. you can still decide to sell or let your home). Following the homeowner’s death, when the trust has done its job, it can be dissolved and the property passes to your immediate beneficiaries.
However, it’s important to realise that trusts set up expressly to avoid care costs may be challenged by local authorities. There are many other advantages to setting up a trust, such as protecting wealth for future generations, avoiding the need for probate and making the best of your taxation position. It’s much better to consider the protection offered by a trust as a welcome additional benefit, as opposed to its primary purpose.
With a single person’s charges for care estimated to be around £40,000 per year (Trinity Mirror 2014), the cost of care poses a significant threat to the financial security that people have worked hard for all their lives. But with careful planning your home can be comprehensively protected for today and your wealth can be preserved to benefit many generations who are yet to be born.
[Note: the content of this blog applies to England and Wales only, as other jurisdictions have different laws and legal processes. In addition, this blog is not a substitute for personalised guidance from a professional adviser and is for information only.]