Most effective trust to protect father’s house?

Eyesontheball

I am trying to work about the best way to protect my father’s house from future tax and potential care home fees. Having done quite a bit of research lately, I would really appreciate any feedback to my findings thus far from anyone with any practical experience of this.

My father is 78 years old, in relatively good health for his age, and lives alone as a pensioner in his only property, worth around £650k.

This is what I understand to be the case so far, but please correct me if I’m wrong:

1. A “Family/Asset protection trust” could potentially be disregarded by the council in his estate IF, ironically, it is not set up with the explicit intention of capital “deprivation” – i.e the motives for the trust must be to, for example, avoid probate issues on his death etc. It appears such a trust would guarantee that, upon my father’s death, only myself and my 2 brothers would inherit the house – any future wives/partners would be excluded.

(This is a good article on reasonable motives to set up this trust – and hence not fall foul of a future council “capital deprivation” allegation. It appears lawyers and advisors cannot ethically tout these trusts as being aimed at avoiding care fees as this would then, ironically, be deliberate capital deprivation! It appears that “unintended” capital deprivation for care fees is the key. Forgive my football analogy, but I guess it’s a bit like not being penalised with a penalty when it appears you “unintentionally” handled the ball in the penalty area!) It's on the Clive Barwell website....I don't think links are allowed?

2. I understand that in this case, the council could pay the maximum allowed care home fees, but that my father could choose to top-up this money from, for example renting his house out. I’ve read that in practice, the council outlines what it will pay, but you can choose the care home and top up the rest?

Am I right in thinking that such a trust could never protect from IHT as my father would fall foul of the “gift with reservation rule”, as he would continue living in the house? After being divided among we 3 brothers, would we fall underneath the IHT threshold, or is the IHT threshold for the whole estate? If it makes any difference, our mother died over 20 years ago, so I’m not sure if we would be able to add her threshold to reduce IHT?

Any advice would be greatly appreciated as my father has worked very hard all his life, paying his taxes, and doesn’t want the family to unnecessarily pay even more tax or lose the house should he have to go into care.

Many thanks in advance.

xylophone

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/pass-home-to-children.htm

http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm

http://www.ageuk.org.uk/home-and-care/care-homes/deprivation-of-assets-in-the-means-test-for-care-home-provision/

http://www.telegraph.co.uk/finance/personalfinance/insurance/longtermcare/10117822/Warning-over-care-home-trust-schemes-that-promise-to-protect-your-property.html

Mojisola

Eyesontheball wrote: »

I am trying to work about the best way to protect my father’s house from future tax and potential care home fees.

I understand that in this case, the council could pay the maximum allowed care home fees, but that my father could choose to top-up this money from, for example renting his house out. I’ve read that in practice, the council outlines what it will pay, but you can choose the care home and top up the rest?

Any advice would be greatly appreciated as my father has worked very hard all his life, paying his taxes, and doesn’t want the family to unnecessarily pay even more tax or lose the house should he have to go into care.

If your father manages to lock away his assets, does need residential care and the council pays his care home fees, they will take all his income such as pensions and rental income (bar spending money of about £20) to recoup as much as they can.

As a council funded client, he would not be able to pay top-up fees himself - it has to be a third party who signs the paperwork and pays the fees.

While your father might like the idea of passing on an inheritance to his children, wouldn't his children prefer to see their Dad choosing where he lives for his last years, rather than going into the cheapest home available?

System

Mojisola wrote: »

wouldn't his children prefer to see their Dad choosing where he lives for his last years

Doesn't look like it, the money on death appears to be more attractive

[Deleted User]

Few people on this forum are going to spend their time advising you on how you and your family can avoid paying your fair share. If your father offloads the responsibility for his care home fees onto his local council that will in turn mean he is offloading his care home fees onto the tax payer, who are (in the majority) people who do not have assets worth over £650,000.

le_loup

Eyesontheball wrote: »

as my father has worked very hard all his life, paying his taxes, and doesn’t want the family to unnecessarily pay even more tax or lose the house should he have to go into care.

Oh dear! Haven't we all?
Well. I have and I don't want to pay even more tax to fund your inheritance.

Your_Hero

Speak to a local IFA (www.unbiased.co.uk) and get proper advice. This is an area that's well worth paying money for and finding out what can and can't be done. Far too involved for most people to discuss in detail on the online forums, not to mention that no one will accept any responsibility should things go wrong.

patanne

And what happens if one of you gets divorced, goes bankrupt or even dies.

redpete

Eyesontheball wrote: »

Any advice would be greatly appreciated as my father has worked very hard all his life, paying his taxes, and doesn’t want the family to unnecessarily pay even more tax or lose the house should he have to go into care.

I work hard now and I don't want to have to pay council tax towards your father's care so that you can inherit more of his money when he dies.

Savvy_Sue

Your_Hero wrote: »

Speak to a local IFA (www.unbiased.co.uk) and get proper advice. This is an area that's well worth paying money for and finding out what can and can't be done. Far too involved for most people to discuss in detail on the online forums, not to mention that no one will accept any responsibility should things go wrong.

And worth it for the Inheritance Tax planning alone.

Few of us have any sympathy for the 'worked hard, wants to pass the house on' argument, and I for one would like my relatives Mum to be able to CHOOSE the best care home for their needs, paying for it themselves, and leaving nothing behind if that's what it takes.

Also worth remembering that far fewer people actually need residential care than we tend to think, and those that do don't generally need it for that long.

troubleinparadise

Here's another idea.

Your father could sell his house and downsize to a smaller property which could better meet his physical needs into his old age, such as sheltered housing, a flat or a bungalow.

Then live comfortably on any excess (or go on cruises and drink champagne for his remaining years if things are that good).

That way his potential IHT exposure will be reduced, he will have a home that meets his needs, funds to pay for any care he might like to have in his own home, and not have to worry about his finances for his lifetime.