Long Term Care and Your Home
What can I do about protecting my home from Long Term Care costs?
Many of us work very hard throughout our lives with the goal of owning our own home and building up some savings for retirement. Eventually we would like to leave something for our children and grandchildren after we are gone.
However, if you have £23,250 or more in capital (including your home) you will be expected to pay the full cost for accommodation, board and personal care. These costs can literally wipe out your entire savings and your property may have to be sold to pay those fees. This could mean that your loved ones receive very little, or even nothing at all of what you originally intended them to have.
When anybody enters long term care they are initially “means tested” and ALL of their assets are taken into account. Only those who have very little (currently under £14,250) will escape the costs of care.
So how do we protect those assets?
It may first of all be important to say what shouldn’t be done. A common mistake is to say “I’ll just sign my house over to my children now.”
Transferring your house over to your children is sometimes seen as an easy way to avoid the problem. It is in fact an exceptionally bad idea!
Many problems can arise which could leave you in an even worse position, these are a few:
- If your child divorces, your house will form part of their divorce settlement. A forced sale could arise to pay out the ex spouse’s share.
- Your child may become bankrupt (this could be as a result of a business failure or credit card debt) they could then force a sale of your house to pay off the creditors.
- If your child dies before you, your house may pass to the wrong person (e.g., to your son-in-law or daughter-in-law).
- Your child could borrow against the house putting the property at risk.
- Your child could sell the house without your permission.
- Your child could pressure you to enter care before you are ready to do so.
- Your child may have to pay Capital Gains Tax on the sale proceeds.
You could also be accused of a ‘Deliberate Deprivation of Assets’. The City Council states:
“If you dispose of any capital, assets or savings before you go into a care home or when you are already living in one, we are required to investigate the circumstances. If we decide that a significant factor in your decision for the disposal was to avoid or reduce the amount you have to pay towards your care home fees, this may result in the financial assessment being completed as if you still have this asset.”
So what can be done?
Firstly we need to look at how your property is owned. The majority of people who buy a property with another person have the ownership arranged as Joint Tenants. This may be the correct way to own a property in certain circumstances but for many people this is not the answer for either Care Cost issues or Inheritance Tax liabilities.
Severing the tenancy on the property and changing the ownership to Tenants In Common, so you now each own an identifiable 50% (percentages can vary if required) and then setting up mirror Wills, each transferring the share of the property to a Trust can safeguard your home.
When the first of you die that person’s share of the property is left to the Trust, whose final beneficiaries are often the children and grandchildren. Whilst the surviving partner continues to reside in the property.
What are Joint Tenancy and Tenancy in Common?
Within the UK there are two ways that property can be owned, this can either be as ‘joint tenants’ or as ‘tenants in common’. Don’t be confused by the terminology, this has nothing to do with renting or tenancies.
Under this agreement the joint owners own the whole property together and do not have a defined share of it. So if for example one owner was to die the other automatically becomes the sole owner. This would apply even if a Will has been made leaving that person’s share to another individual. It would still legally transfer over to the joint owner, ignoring the wishes of the Will.
Tenancy in common
Tenants in common is in effect the opposite of joint tenancy. Each owner has a specific share in the property. For example, A and B could own the property in equal shares, or A could own one third with B owning two thirds. Under this form of ownership, if one of the owners dies, his or her share will pass on to whoever they specify in their Will. If no Will is in place then the share would pass down through the rules of intestacy (dying without leaving a valid Will). With this in mind it is strongly advised that a Will be drawn up when buying a property as Tenants in Common.
Which form of ownership should you opt for?
This depends upon personal choice and your particular circumstances. Very often joint tenancy is used as the default way of owning a property. It is very common among married couples where the owners see no advantage in defining their separate share. The problem with this is that the whole of the property will pass into the survivor’s estate upon first death, which will then mean that the property will be assessed for care costs if required and also have Inheritance tax implications on second death. Tenants in Common gives the owners the flexibility to decide what they want to do with their share.
If you would like to discuss protecting your family home, long term care fees or any similar topics please feel free to contact your local Farsight Wills consultant. We have offices based in Swindon town centre, alternatively we are always happy to arrange a free home visit or have a chat on the phone.