Losing Your Home To Pay For Long Term Care Fees

There is more than one way in which a person can protect a property against the threat of enforced sale to pay for care fees, such as giving your home away as a gift or taking out a special insurance policy. This article is designed to look at ways in which you can protect your single greatest asset from the Government taking it away from you to pay for care fees.

Property Ownership

Essential to the working of Property Trust Wills, is the way in which you own your property. Most couples own their home as joint tenants. This means that when one of them dies, the property will automatically pass to the survivor – regardless of any intention under a Will.

A property owned by a couple does not have to be held in a joint tenancy, it can be held as tenants-in-common. This involves each partner owning half of the property and this can be left to others (such as children) when one of them dies, by the use of Wills and Trusts.

This type of property ownership (tenants-in-common) has the important advantage of allowing half of the property to be passed on to say the children on the death of the first partner. The remain partner will be allowed to stay in the property whilst ever they are alive and so this makes the whole arrangement work well.

Because of the special way in which this is arranged, if the surviving partner needs to go into care then the local government are not able to take into account the whole property as half of it is owned by others.

Example – Mr and Mrs Brown own a house at 25 Maple Crescent and it is held as joint tenants. They decided to have a special Will drawn up and they set up two property trusts to protect each half of the home in the even of one of them needing Long Term Care.

Firstly, the ownership of the property would need to be altered from joint tenants, to tenants-in-common.

A special Will would need to be written so that Mr and Mrs Brown create a life interest in each of their 50 percent ownership in the property for the surviving partner, with the subsequent sale proceeds passing in equal shares between the children. The surviving partner to move home at this point if they so wished. Any monies realised if the surviving partner decided to take this option would be available for their lifetime would be become the property of the children once the second partner died.

Let us assume that Mr and Mrs Browns house at 25 Maple Street is worth about 200,000 and that Mr Brown is the first to pass away. Mrs Brown decides that she wants to move to a smaller dwelling valued at say 100,000. She could sell 25 Maple Street and use Mr Brown’s trust – valued at 100,000 to purchase the new house. Mrs Brown could then spend the remaining 100,000 as she wishes and this could even provide her with an income during her lifetime.

Another way of structuring this case, would be for Mrs Brown to own half of the new smaller property. She could then do what she wanted with her 50,000 and the remaining 50,000 could be invested by the Trustees of Mr Brown’s trust to generate an income for Mrs Brown whilst she is alive. When Mrs Brown dies, Mr Brown’s half share of the property and the capital from the investment would go to the remaining children.

Should Mrs Brown need to go into long term care, then the local government could only take Mrs Brown’s assets into consideration and not Mr Brown’s other half share in the home or the money in the investment. This will effectively protect the remaining half of the trust holdings. Although it is technically possible to realise Mrs Brown’s half share in the property, it is virtually impossible to sell half a property and so it is unlikely that a forced sale can go ahead in these circumstances.

Can the surviving co-owner move, or will they be stuck in the same property?

You can move, and many people choose to, particularly if the home becomes too large for one person. It is important that the terms of the trust are flexible.

Is it possible that the children can force me out of my home?

No – not at all. The way that the trust is written prevents this happening and only when you have both gone will the children be able to take the property.

Can a Property Trust Will assist in the reduction or payment of Inheritance Tax?

No. Since your spouse/partner has right to use your half of the house, this is regarded as though he/she owns the property for the purposes of calculating inheritance tax. The sole benefits of the Property Trust Wills are to protect against possible future care cost fees or to protect your share in the property for beneficiaries of your choice.

Is it possible for new rules to make such an arrangement no longer valid?

No – it is quite within the rules for you to leave your share of your home to whoever you want to. Rules may indeed change in the future, in fact it is unlikely that they will stay the same to be honest. Should this happen then, the new rules would only apply to the partner remaining alive and this is the person out of the two of you who is mose likely to need care.

A trust and a Specialist Will is not to be seen as a ‘Loophole’ but it is in fact a simple and common sense approach to estate planning. Should the remaining partner require care once the first partner has died, it is just not thinkable to plan to allow them to inherit the wole value of the assets just before a local government inspector is assessing a means tested set of assets.

Why half – why can’t I put the whole of the house in trust?

If one spouse/partner owns the property in their sole name then yes, you could put the house in trust for the children and allow the surviving spouse/partner to live in it for the rest of their lifetime. If the surviving spouse/partner requires care after your death then the whole of the property is safe.

We would always recommend that a separate trust is set up rather than a Will Trust. With the latter, should your partner die first (the one in who’s name the house is held) then the whole property could be at risk if you need care before they die. Care fees could have eroded the value of your home by the time your partner dies and it is better to protect half the home than to lose it all. It is also worthy of note that current thinking by local authorities is that it is not feasible to sell half a property.

What if we do not have children – who could my share be left to?

It is possible to leave your share to any organisation in your trust. Maybe more distant family, some charity or even a combination of both – it really is your choice – but at least it will be you that is making the choice and not a Government taking it for themselves.

Would we still be protected if we both were required to go into care?

The answer is yes – as the trust is established on signing and not on death, this will have the effect of protecting half of the home immediately. Given the depth of current thinking (which is unlikely to be changed in the medium term at least), it is so impractical to sell half a home that it is not thought to be feasible by local authorities.

And to conclude – A house is usually the greatest asset that a couple has to pass on to other generations after death. If you are concerned at the thought of selling your home to pay for care fees upsets you, then please seriously setting up a trust and writing a Special Will to ensure that this does not happen to you.

Want to find out more about writing a will, then visit Simon Westlake’s site on how to choose the best way to protect your assets against care fees and what you can to to stop this happening.