Query from my parents

troubleinparadise

As well as planning wills, your parents should be looking at how to handle things should their health deteriorate and additional care is needed.

Both your parents should set up Lasting Powers of Attorney, naming the other spouse and you/your siblings as attorneys. Then their financial and health affairs can be handled if either loses capacity to do so for themselves.

If the house is owned as tenants in common, then only half the house's value can be assessed for care home funding. A life interest written in the Will for the surviving spouse protects the roof over their head.

A joint account will also be viewed as being owned 50/50 in a financial assessment, so it is worth having a sum of money which covers household expenses in that account, and individual accounts.

zagfles

troubleinparadise wrote: »

If the house is owned as tenants in common, then only half the house's value can be assessed for care home funding. A life interest written in the Will for the surviving spouse protects the roof over their head.

If the house is owned jointly in the normal way (beneficial joint owners) then it's not counted at all for care home fees if one of them goes into a care home and the other remains living in the house.

Other jointly owned assets/property would only be assessed on the share owned by the person going into the care home, ie normally half the value.

http://www.ageuk.org.uk/home-and-care/care-homes/paying-for-care-if-you-have-a-partner/

Yorkshireman99

zagfles wrote: »

If the house is owned jointly in the normal way (beneficial joint owners) then it's not counted at all for care home fees if one of them goes into a care home and the other remains living in the house.

Other jointly owned assets/property would only be assessed on the share owned by the person going into the care home, ie normally half the value.

http://www.ageuk.org.uk/home-and-care/care-homes/paying-for-care-if-you-have-a-partner/

In theory yes but some unscrupulous local authorities have been known to try it on with vulnerable relatives.

zagfles

MrChips wrote: »

I think they got legal advice at the time (over 10 years ago). Can you explain where it falls down so I can explain to my parents (notwithstanding the subsequent change to make nil rate band transferrable to spouse makes it obsolete)?

As above it's pointless now for IHT purposes.

To have made this arrangement the house must be owned as tenants in common, rather the normal way (beneficial joint owners).

If something is owned in the normal way as benefical joint owners then they share ownership and if one of then dies the other inherits automatically (by "survivorship"), their share cannot be passed by will.

If something is owned as tenants in common then they own half each and their half can be passed by will. So their arrangement 10+ years ago must have changed ownership to tenants in common.

The only advantage I can see to this now, is if one of them dies and half the house gets shared between the children, then if the other ends up going into a care home then only half the house value could be considered for care home fees (although even there I'm not sure, deprivation or POAT rules might come into force, probably not - google it and see above link).

The disadvantages are numerous as I listed above. Say one of the children loses their job and needs to claim benefits. They part own a property they don't live in, that would count as capital and disqualify them from means tested benefits (eg housing benefit, support for mortgage interest). They might have no choice but to force a sale of the house, or sell their share.

Say one of the children wants to buy a house, or buy with a partner. They might be subject to the new higher rate of stamp duty, on a £200,000 house norrmally they'd pay £1500 stamp duty, but they might have to pay the higher rate, an extra 3% stamp duty on the entire price, making £7500 !! £6000 extra. There's a exemption if you're replacing your main residence, but not if you don't own a property (eg living in reneted/parents/house owned by spouse/abroad etc). Details here: https://www.zoopla.co.uk/discover/buying/q-a-new-3-stamp-duty-surcharges/

You'll probably also be disqualified from the govt's first time buyer schemes.

There's capital gains tax to pay as mentioned, if the house increases in value after inheriting.

The problem with these IHT/care home fee dodging schemes is they often cause a load of other problems which are worse!

zagfles

Yorkshireman99 wrote: »

In theory yes but some unscrupulous local authorities have been known to try it on with vulnerable relatives.

What and they don't if the property is owned as tenants in common?? They can try on whatever they like, as long as the OP and his siblings understand the rules or where to find them they'll be able to stand up for their parents.

getmore4less

zagfles wrote: »

As above it's pointless now for IHT purposes.

To have made this arrangement the house must be owned as tenants in common, rather the normal way (beneficial joint owners).

If something is owned in the normal way as benefical joint owners then they share ownership and if one of then dies the other inherits automatically (by "survivorship"), their share cannot be passed by will.

If something is owned as tenants in common then they own half each and their half can be passed by will. So their arrangement 10+ years ago must have changed ownership to tenants in common.

The only advantage I can see to this now, is if one of them dies and half the house gets shared between the children, then if the other ends up going into a care home then only half the house value could be considered for care home fees (although even there I'm not sure, deprivation or POAT rules might come into force, probably not - google it and see above link).

The disadvantages are numerous as I listed above. Say one of the children loses their job and needs to claim benefits. They part own a property they don't live in, that would count as capital and disqualify them from means tested benefits (eg housing benefit, support for mortgage interest). They might have no choice but to force a sale of the house, or sell their share.

Say one of the children wants to buy a house, or buy with a partner. They might be subject to the new higher rate of stamp duty, on a £200,000 house norrmally they'd pay £1500 stamp duty, but they might have to pay the higher rate, an extra 3% stamp duty on the entire price, making £7500 !! £6000 extra. There's a exemption if you're replacing your main residence, but not if you don't own a property (eg living in reneted/parents/house owned by spouse/abroad etc). Details here: https://www.zoopla.co.uk/discover/buying/q-a-new-3-stamp-duty-surcharges/

You'll probably also be disqualified from the govt's first time buyer schemes.

There's capital gains tax to pay as mentioned, if the house increases in value after inheriting.

The problem with these IHT/care home fee dodging schemes is they often cause a load of other problems which are worse!

most(if not all) the negatives are completely avoided with the life interest trust.

not a first/seccond home for the remaindermen(children) till the life tenant dies ie. no SDLT/FTB implications,

treated as if owned by the survivor for IHT and CGT, No CGT might be IHT if it gos up in value

can't be considered for deprivation or care.


When the rules on life interests trusts were changed to close some of the tax benefits this specific case(imediate post death trust created by will) was left in place with all the benefits.

zagfles

getmore4less wrote: »

most(if not all) the negatives are completely avoided with the life interest trust.

not a first/seccond home for the remaindermen(children) till the life tenant dies ie. no SDLT/FTB implications,

treated as if owned by the survivor for IHT and CGT, No CGT might be IHT if it gos up in value

can't be considered for deprivation or care.


When the rules on life interests trusts were changed to close some of the tax benefits this specific case(imediate post death trust created by will) was left in place with all the benefits.

Possibly - though care home fees are a political hot potato at the moment so the rules are likely to change. From what I understand the IHT situation on the second parent's death would be exactly the same as if the property had been owned jointly and passed by survivorship on the first death, so there are no IHT advatanges at all AIUI?

It also complicates things, eg probate would be required on the first death, formalities of the trust would need to be done, what if the surviving spouse wanted to move house, remarry etc.

troubleinparadise

Reference "tenants in common" house ownership:-

- whilst the situation has been that the house is disregarded in a financial assessment if a spouse continues to live in the house after the other spouse enters care, this cannot be depended on to remain that way if funding rules change;

- if the house-dwelling spouse dies, then the entire house value will be available for care fees;

- This can be set up (changed from joint ownership to tenants in common) even if the joint owner has, say, a diagnosis of dementia - seek legal advice on that;

- not everyone has a strong advocate prepared to argue for the rights of a declining person; it is better to have things sorted than hope someone will sort them out in retrospect.

EasySolution

zagfles wrote: »

As above it's pointless now for IHT purposes.

To have made this arrangement the house must be owned as tenants in common, rather the normal way (beneficial joint owners).

If something is owned in the normal way as benefical joint owners then they share ownership and if one of then dies the other inherits automatically (by "survivorship"), their share cannot be passed by will.

If something is owned as tenants in common then they own half each and their half can be passed by will. So their arrangement 10+ years ago must have changed ownership to tenants in common.

The only advantage I can see to this now, is if one of them dies and half the house gets shared between the children, then if the other ends up going into a care home then only half the house value could be considered for care home fees (although even there I'm not sure, deprivation or POAT rules might come into force, probably not - google it and see above link).

The disadvantages are numerous as I listed above. Say one of the children loses their job and needs to claim benefits. They part own a property they don't live in, that would count as capital and disqualify them from means tested benefits (eg housing benefit, support for mortgage interest). They might have no choice but to force a sale of the house, or sell their share.

Say one of the children wants to buy a house, or buy with a partner. They might be subject to the new higher rate of stamp duty, on a £200,000 house norrmally they'd pay £1500 stamp duty, but they might have to pay the higher rate, an extra 3% stamp duty on the entire price, making £7500 !! £6000 extra. There's a exemption if you're replacing your main residence, but not if you don't own a property (eg living in reneted/parents/house owned by spouse/abroad etc). Details here: https://www.zoopla.co.uk/discover/buying/q-a-new-3-stamp-duty-surcharges/

You'll probably also be disqualified from the govt's first time buyer schemes.

There's capital gains tax to pay as mentioned, if the house increases in value after inheriting.

The problem with these IHT/care home fee dodging schemes is they often cause a load of other problems which are worse!

A STEP practitioner or a good Solicitor can create a Life Interest Trust that solves most of your listed issues.

If H & W own a property worth £400K and have £20K in the Joint Bank Acct.

H dies and chooses to leave his £200K share to his children via a Life Interest to W.
W is now assessed for Care Charges. Has she deprived hereself of anything? No.
She owns £200K of house and £20K in the bank. She is assessed on £200K +£20K

Alternatively H leaves everything to W so now she is worth £400K +£20k.

This is not a "dodge" as you call it but H making an informed decision.

zagfles

EasySolution wrote: »

A STEP practitioner or a good Solicitor can create a Life Interest Trust that solves most of your listed issues.

You say "most", as a matter of interest which would it solve and which wouldn't it? (genuine question - I know very little about trusts)

If H & W own a property worth £400K and have £20K in the Joint Bank Acct.

H dies and chooses to leave his £200K share to his children via a Life Interest to W.
W is now assessed for Care Charges. Has she deprived hereself of anything? No.
She owns £200K of house and £20K in the bank. She is assessed on £200K +£20K

Alternatively H leaves everything to W so now she is worth £400K +£20k.

This is not a "dodge" as you call it but H making an informed decision.

What would happen if W decided to downsize to a £200k house?

Or if she met someone else, moved into his house and wanted to spend the capital on world cruises etc? Presumably she'd be obliged to leave £200k in capital for the kids? Who decides what that capital is invested in? If she gets the income and the kids get the capital, then obviously it would be in her interests to choose high income investment and in the kids' interest to choose high growth investments.

Or what would happen if one of the children got divorced, would their ex have a claim on their "share" of the trust's capital?

Also like I said above, care costs are a political hot potato so the rules will almost certainly change. The original plan was to cap care costs that people would have to pay at £72,000 or so. In fact AIUI that is current legislation in the Care Act 2014 but the implementation date is not till 2020.

So if the govt backtracks on it's so called "dementia tax", highly likely since it was probably the most controversial element of the manifesto which lost them their majority, they might stick with the original plan to cap care costs in which case it won't matter that H set up a trust to protect "his" half of the house, as W's care costs would eat up less than her £200k half.