Deed Of Trust

weanie

Thanks Errata - I am aware that the issue is complex and emotive. I am simply trying to clarify information and options without judgement.

localhero

Errata wrote: »

I can think of no good reason why the council wouldn't place a charge on the property.... Council's are required by law to maximise their income and of course some of that income is used to fund care for older people both in their own homes and in residential care.
Common sense would dictate that if your mum's house was worth a million then the council would be foolish not to put a charge on it and be prepared to wait for the property to be sold.

Common sense (which funnily enough isn't that common) and what the law actually says may be two different things. The law says that anybody requiring long term care is means tested to ascertain the market value of their assets, subject to various exemptions.

A local authority will sometimes argue that the market value of a property in the circumstances that Weanie's mother may find themselves, is 50% of the value of the house. Many solicitors might advise that is also the case.

Other local authorities will readily accept that the market value of half of a house co-owned by others who don't wish to sell is nil. This makes sense, as I know of nobody who would buy half of a house where the other co-owners don't wish to sell.

In any case, this has been tested already by the courts and I would argue that the entire house cannot be touched.

If the house is sold everything will change as the mother will have liquid cash that certainly could be swallowed up in care fees.

errata wrote:

could I suggest you seek guidance on this from the local authority?

That's probably akin to asking a policeman for legal advice. I would suggest advice is sought from somebody impartial who should really know their stuff - perhaps a STEP qualified solicitor, as the exact wording of the father's Will could also be important.

Baggysdad

If someone who was
say 67 years old
and still working say 3 days a week
and was as fit as a butchers dog
and gave their house to their offspring
and had say seven years later a serious stroke and needed residential care
it would be hard for a local authority to prove intentional deprivation of assets in order to avoid care home fees

Well the question the local authority would ask is; Why did a 67 year old, while working a 3 day week and fit as a butchers do give his house to his offspring but continue to live in the house himself?

This transaction creates the CGT problem for the offspring highlighted by artha
This transaction doesn't save a penny in IHT (because its a gift with reservation of benefit)
This transaction creates problems highlighted by sloughflint if any of the offspring divorce or become bankrupt.

So, given the above, why would anybody do it? Unless its to avoid care fees?

The Deed of Trust referred to by the OP is a transaction made by someone during their lifetime to transfer ownership of their property to a trust. The trust gives the person(s) setting up the trust the right to occupy the property for their lifetime(s) and on their death it passes to their, for example, children.

This gets around the CGT problems and the bankruptcy/divorce problems - but it doesn't get around the deprivation problem - in fact it is exasperated because the Local Authority have further proof in the Trust wording of the intention for the property to remain the home of those who created the trust - even though they 'gave the property away'.

The cost of setting up the trust is usually around £1,000. For single people willing to gamble that kind of money knowing that they might be wasting their £1,000, its worth a try.

For couples, they are better going down the route of changing to tenants in common and writing wills passing their respective property shares into the type of trust outlined above. The beauty of this is that since the trust is created on death, the person who has created it has died, and therefore won't need care, and therefore deprivation issues are irrelevant.

Should the surviving spouse need care, they own their own half of the house, not all of it, because half of the house is now sitting in a trust. There is arguable case law that if the house is retained (and rented out, say), then the real value of the half of a house of the surviving spouse needing care is Nil (how much would someone pay for half a house?) - which effectively moves the whole value of the house from local authority assessment.

The set up obviously requires specialist advice - and won't be for the type of people who frequent this board looking for the cheapest deal around, irrespective of the quality - such as DIY wills or Internet Wills or Wills funded by charities - but then the potential rewards are so much higher.

How smart is it to do a DIY will for £15, thereby saving a couple of hundred quid, then loose your whole house paying for your care fees at some point later in life????????

Baggysdad

You afterthought is really where I was coming from. We did inherit Dad's 50% and Mum is possibly not even a year away from going into residential care. what I can't get my head around is the idea that we could prevent a charge being placed on the house by S Services when the time comes. I wonder if anyone else has been successful in doing so on the basis that other parties with an ownership share do not wish to sell. My advice from certain agencies has been that it doesn't make any difference and the 50% share belongingtomum would be swallowed up in back fees for the care.

For this to work, I suggest that you don't sell the property - and you don't buy any of your mothers share of the property.

There is case law (Special Commissioners V Palfrey) which indicates that the value of half a house, providing the co-owners don't want to sell, is whatever a buyer in the open market would be prepared to pay for half of a house in the knowledge that the people he will be co owning with don't want to sell.

Given that this value with be Nil, or very close to it, the Local authority will be forced to value the property as:
1) 25% not owned by your mum, owned by you, given to you by your father, therefore your mother has not given it away and deprived herself of the value of the assets, so its value is not assessable
2) 25% not owned by your mum but owned by your brother, given to him by his father therefore his mother has not given it away and deprived herself of the value of the assets, so its value is not assessable
3) 50% owned by your mum - value Nil, or very close to it.

Therefore, as far as the local authority are concerned, although it exists, its value is negligible. Since this value will have little or no impact on the capital assessment of your mothers assets, they cannot put a charge on something which has a negligible value. You may well have to fight this point, but it's worth doing so - even if you have to put your hand in your pocket and pay for some professional advice and support.

If you sell the property, your mother then has 50% of of the sale proceeds in cash. And the assessable value of money is whatever its worth.

If you buy a share of your mothers interest in the property, you will have to do so at open market valuation and you will have to give her the cash. This cash will then be assessable if your mum goes into are.

It is worth pointing out that if your father left his half of the house to you and your brother outright, rather than in a trust which gave your mother the right to occupy his half of the house, you will both be liable for CGT when you sell the property.

EdInvestor

Baggysdad wrote: »

The set up obviously requires specialist advice - and won't be for the type of people who frequent this board looking for the cheapest deal around, irrespective of the quality - such as DIY wills or Internet Wills or Wills funded by charities - but then the potential rewards are so much higher.

Surprisingly enough arrangements like this has been discussed at great length on many internet BBs for several years. You shouldn't assume people who frequent BBs are only looking for cheap deals, they are seeking information so they can get value for money.

It is the people who directly consult incompetent solicitors without researching the issues in advance who end up with the ineffective setups which fail to do the job and usually open them to more costs than would have been payable if they had done nothing.