Heritage Wills and Probate

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Home Protecting Your Assets

Protecting Your Assets

Protecting your home

Most people who co-own their home with another person do so as Joint Tenants. They both own the whole property. On the death of a Joint Tenant, the home AUTOMATICALLY becomes the sole property of the survivor - who can then do what they want with it. However this can cause problems:

If the survivor then remarries, it is possible that the whole of the house will then pass to their new spouse on their death, thus disinheriting the children of the first marriage.

Or

Where the first spouse has children from a previous relationship, the survivor may simply change their will and leave nothing to their step-children.

Or

If the survivor has to go into a Nursing or Residential Home, as the sole owner of the property, the Local Authority has powers to charge the cost of care against the value of the whole house, again disinheriting the children. This is a growing problem because with life expectancy rising there is the growing likelihood that long term care will be required, and statistically, one in every three women and one in every four men are likely to require long term residential care, and in order to pay the fees which range from £450-£700 per week, around 50,000 homes are sold each year.

The answer to all of these problems, is to change the way the home is owned from Joint Tenants to Tenants in Common - a straightforward process that doesn't involve the mortgage company even if the property is mortgaged.

As Tenants in Common each owner typically owns one half of the property and, using a will, can do whatever they wish with their share of the property on their death, including leaving it to their own children - but this course of action is unwise for various reasons

  • The surviving spouse could be forced out of the home by its sale upon the death of the first spouse;
  • The surviving spouse may be prevented from selling the house if they wish to move or downsize;
  • The surviving spouse could be forced to sell the house if one of the children got into financial or marital difficulties;
  • If the children don’t occupy the property as their main home, any increase in the value of the house will be subject to Capital Gains Tax.

A better, safer alternative is to postpone the gift to the children until the survivor has died by incorporating a trust in the will so that if the surviving spouse remarries (or has further children even), they will only be able to leave them their own share. To protect the interests of the surviving spouse and to prevent them being forced sell the house upon the death of the first spouse, provisions can be made so that they can continue to occupy the property rent free until they die.

Additionally, by leaving it to their (own) children, if the surviving spouse needed care, the Local Authority can only charge the cost of care against the half of the house that they own - ensuring in either case that their children inherit at least half of the value of their home.  

This type of trust is known as a Property Protection Trust and can allow the surviving spouse to sell the property and use the proceeds of sale towards the purchase of another property. If there is a surplus they can also have access to the capital and/or income.

Protecting your savings

In the same way as a property protection trust safeguards a property or a share of property from loss in the event of the survivor remarrying or requiring long term care, other assets such as savings can be protected in the same way. The survivor can be given the right to an income from the savings for their life, but for the capital to pass to, say, the children, upon their death. This type of trust is known as a Life Interest Trust.

Protecting property and savings

For complete flexibility, a Flexible Life Interest Trust can be included in a will that incorporates both of the above trusts to protect both property and savings and to provide further benefits. The trustees can be given wide flexibility to loan or advance capital to the surviving spouse or to even bring to an end their right to an income and appoint capital to other beneficiaries. For married couples with a combined estate exceeding £650,000, by making potentially tax exempt gifts to other beneficiaries can help to minimise inheritance tax. The trustees can also appoint assets into new discretionary trusts if the tax rules change and it is advantageous to do so.

Single people

Sheltering assets from long term care fees if you are single, divorced or widowed is less easy than if you plan your estates as a couple. For, if you give away assets in your lifetime to avoid paying for care, the local authorities can deem that the gift was 'deliberate deprivation of capital' and seek the payment of fees.

The rules are complicated, but there is often a solution. If you are in a position where you want to shelter your assets from long term care it's vital you act without delay. The solution may not be cheap but any asset you own above £23,000 is 100% at risk and can be legitimately safeguarded from care fees means testing with the appropriate course of action.

 

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