Equity release and transfer of property to offspring

MrsMad_3

My parents aged (76) would like to transfer their property to me and my brother. For two reasons a) Mum wants to ensure if they need to go into care the property value isn't eaten up in costs i.e. we don't get to inherit the house and b) they would like to release some equity from their property without using an equity release company i.e. my brother and I will provide the funding.
Property is worth about £380k and they want about £70k out of it.
Options we have considered so far are:
a) They sign all house to us and we give them part payment and monthly payments there after.
b) They sign part % of the house to us and we take mortgae against that value.
c) They sign it all over and we take mortage to whatever amount they want.
nb we also have our own mortgaged houses.

Are there any other options we could consider? Or any advise on protecting the property from being used to pay if they do need to go into care? Thanks

Mojisola

Read up on "deprivation of capital".

dunstonh

a) Mum wants to ensure if they need to go into care the property value isn't eaten up in costs i.e. we don't get to inherit the house

So, transferring the property won't achieve that as its deprivation of assets.

they would like to release some equity from their property without using an equity release company i.e. my brother and I will provide the funding.

Which creates a whole load of inheritance tax and capital gains tax issues.

Have you actually investigated the options and identified the problems with your proposals or is this just an early discussion without knowing what you are doing is doomed to fail?

MrsMad_3

dunstonh wrote: »

So, transferring the property won't achieve that as its deprivation of assets.



Which creates a whole load of inheritance tax and capital gains tax issues.

Have you actually investigated the options and identified the problems with your proposals or is this just an early discussion without knowing what you are doing is doomed to fail?

Thanks, this is just an early discussion and I have no idea what I am doing hence using this as a starter for 10 to try and find out the sorts of things we need to consider.

downshifter98

Have them change the property ownership to tenants in common with a 50-50 split for each of them - change their wills so that their prospective halfs are left to you and your brother (I'm assuming both parents are in OK health and no current expectations of care). This will ensure that at least half of property will likely avoid care fees (and possibly more but google for 'tenants in common care fees' to read up fully). I'm not sure about the tax situation but equity release is still pretty expensive (7%) so avoid if possible - ideally a loan from the 'kids' will benefit both parties (ie less property value used up at 7% per annum) but this would need to be properly documented to ensure full repayment from estate if required.

These questions do come up time and time again - trouble is this type of planning is ideally done when parents are much younger but obviously the risk is that assets are transferred to off-spring who then divorce/lose their jobs and find that assets 'held' for parents only complicate matters - it is a minefield but the very worst that can happen is parents assets are used for better quality care or, perhaps, the off-spring will end up with a child-hood free of cost plus a bonus 30 or 40 years later - doesn't sound so bad compared to some.

Downshifter98

kidmugsy

"change their wills so that their prospective halfs are left to you and your brother": or, perhaps, to a discretionary trust with the survivor and the children (and their children...) as beneficiaries. Discuss with the lawyer when the new wills, and the swap to tenants-in-common are being arranged.

jamesd

MrsMad wrote: »

My parents aged (76) would like to transfer their property to me and my brother. For two reasons a) Mum wants to ensure if they need to go into care the property value isn't eaten up in costs

Is there any current sign that either of them needs that care?

If the answer is yes, it's too late for this planning, deprivation of assets tests will apply.

It the answer is still no then it should be done as inheritance planning and documented that way. This should be safe against deprivation of assets tests unless their need happens quickly. If they live seven years it'll also work as inheritance tax planning provided it's structured correctly. Do not document it as a method to avoid means tests for care; if you do the planning will fail and the deprivation of assets rules will apply.

For inheritance tax and deprivation tests you need to avoid it becoming a "gift with reservations". That would be something like them giving you the house and living in it rent free for their lifetime. That eliminates any inheritance tax benefit.

Instead you can do this:

1. Sale of property to you at full market price, get at least three valuations in writing and keep them.
2. You should be able to get a mortgage for a property for a family member from various lenders, including NatWest. It will be probably be a condition of the loan that you do not provide an assured shorthold tenancy for your parents.
3. You charge them full market rent for living in the property. This is essential, unavoidable, do not do anything that in any way fudges it. If it does not provably happen, complete with bank records proving the payments, your planning will fail.
4. They invest the sale proceeds to generate the income to pay the rent.

As well as the protection from means tests for care and inheritance tax this will be cheaper for them than an equity release mortgage. The potential trouble is qualifying for a large enough mortgage based on your incomes and affordability tests.

Mojisola

MrsMad wrote: »

Mum wants to ensure if they need to go into care the property value isn't eaten up in costs

Another thing that needs to be said - find out what your Local Authority will pay per week if your parents need to go into a home. Visit some of the homes that accept LA-funded residents. Visit some of the other homes that charge more. Decide where you would rather your parents spent their last years.

In some areas, there is very little difference in the quality of the homes and LA-funded people are living alongside self-funders - although the self-funders will be paying more for their care. In other areas, the standard of some homes is awful and I wouldn't leave my dog in them, let alone my parents!

Also consider that if your parents own their home but don't have much capital, they may be entitled some benefits - do they get Pension Credit? If their capital is low and they need items from the OT or carers to come in, there will be help for this. If they have capital, they will have to pay for these things themselves. Most older people do not end up in residential care but stay at home with support coming in to help them manage.

If they have health problems, do they claim Attendance Allowance, which isn't means-tested?

margaretclare

AFAIK it is still only a minority of people who end their days in full-time residential care, although it is a possibility that seems to exercise the minds of an awful lot of people, to judge by the number of times this type of question comes up here. DH and I are your parents' age and we haven't wasted any time on this possibility, too busy getting on with our lives and enjoying the time we have left.

We did equity release in 2003 and no, it wasn't at 7%, or at least it hasn't been anywhere near that for a long time, due to the low Bank Rate.

I agree with what Mojisola says, in spades.

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Chump_2

Hi folks. Please bear with me since this is my first attempt at forum discussion, but I'm keen to get advice on protecting the family assets.
My parents are in their 70's and keen to pass on the house and any remaining savings to my brother and I (and we're keen on that as well!). We've started to read stuff (including postings on this site) and are beginning to piece it together - slowly!

We read an article yesterday which suggested a strategy which appeared to tick all boxes but seemed a bit too good to be true.

If I understand it correctly it suggested that by placing the house and assets in a flexible life interest trust, my parents could retain a high degree of flexibility to perhaps sell the house, get hands on money if needed to top up care requirements, and then pass on the remainder.

If such a scheme does exist could anyone provide further details of how we might go about it and what are the pros and cons?

Also we were wondering who we spoke to to get sorted (solicitor, estate expert, IHT expert, probate person etc), and how much setting up a trust and/or pursuing a tenants in common division of the family home would cost.

Sorry if inappropriately butted in to discussion - as I say bit of a novice!