Putting our house in trust Help Please

Sailtheworld

Sebo027 said:

The criteria for assessment seems to be largely based on intent, so I would think it would be perfectly legal to transfer assets or money to children or whoever provided you have a good reason for doing so, and provided that reason is not to avoid care home liability... It's a bit like inheritance tax, would we scoff at someone who deliberately works within the rules to gift their children a degree of their assets to avoid breaking the IHT threshold? 

The intent when it comes to avoiding care fees is very woolly so the flaw with putting the house in trust is that you might have to wait a couple of decades to find out if you've got away with it. The last thing you need when you go into care is the threat the council won't pay when you've got no money.

I was looking at recycling a pension lump sum. In this case the intent is measured on whether clearly defined tests are passed - it's not open to interpretation so I can sleep easy knowing the recycling isn't recycling as far as the rules are concerned.

Same with IHT really. It's easy - give money away and start early. Most people with IHT 'difficulties' are those that don't plan ahead.

Albermarle

There could be some political aspect to to the tone of the replies.
However the more important point is that this is a respected ( hopefully) consumer financial website, and giving advice/guidance about how to avoid  paying legitimate care home fees would not be a good thing.

Sebo027

Albermarle said:

There could be some political aspect to to the tone of the replies.
However the more important point is that this is a respected ( hopefully) consumer financial website, and giving advice/guidance about how to avoid  paying legitimate care home fees would not be a good thing.

I agree completely. I don't think anyone wants the reputation of the website or forum to suffer.

For some reason when it comes to the disapproval of asset seizure to subsidize elderly care, or inheritance tax, many seem to apply a moral judgement as to whether or not an individual should be seeking to minimize these particular liabilities. 

Consider, for example, capital gains tax. There is often advice given on how to draw down an investment to minimize or avoid - avoid, not evade - capital gains tax liability, in absolute compliance with the current UK tax laws. The treatment is similar to inheritance tax - it's perfectly legal to seek to minimize IHT liability provided you comply with the current UK tax laws set out by HMRC. In principle how is this any different from the OP's original question? Are some taxes more morally obliged than others, and if so, why? 

Note we haven't yet touched on the morality of private "for profit" care homes, profit margins, nor the fact increases on fees have been out pacing inflation by 2.7% each year since 2010.  

AlanP_2

Good points Seb and avoiding tax is something covered on here quite often and helpfully.

Couple of points on the subject of this thread though.

First, paying a contribution towards care fees is not a tax, although it may feel like it to those that end up paying a lot.

Would it be acceptable to deliberately hide all your assets and then use public money to obtain free school meals or free school transport for example?

Secondly, you mentioned compliance with "current UK tax laws", if that underlying philosophy is used in this case then a DELIBERATE / STATED upfront intention to avoid paying care home fees contravenes the deprivation of assets rules.

Linton

AlanP_2 said:

Good points Seb and avoiding tax is something covered on here quite often and helpfully.

Couple of points on the subject of this thread though.

First, paying a contribution towards care fees is not a tax, although it may feel like it to those that end up paying a lot.

Would it be acceptable to deliberately hide all your assets and then use public money to obtain free school meals or free school transport for example?

Secondly, you mentioned compliance with "current UK tax laws", if that underlying philosophy is used in this case then a DELIBERATE / STATED upfront intention to avoid paying care home fees contravenes the deprivation of assets rules.

Exactly.  The council paying for your care, housing and food because you cannot afford the  care home charges is a "benefit" as much as Housing Benefit or Universal Credit.  Attempts to hide your assets to become eligible for such benefits should be seen in the same way as fraud and should certainly not be assisted by MSE.

Avoiding tax is different in that the means of adoing so are usually loop-holes deliberately left open by HMRC perhaps to remove the necessity for them to check up on trivial breaches of a general principle, and as such are explicitly permitted by law.

Albermarle

Note we haven't yet touched on the morality of private "for profit" care homes, profit margins, nor the fact increases on fees have been out pacing inflation by 2.7% each year since 2010.  

Clearly the system of funding care ( not just for the elderly ) needs some reforms. One day a government will really have to face up to it , rather than repeatedly kicking the issue in the long grass for the last 20 years.

However for now squirreling away assets to avoid care home fees is against the law. In any case the number of people who actually lose their house is not as high as the tabloids like to make you think. 

arthurx1234

....

xylophone

It's a bit like inheritance tax, would we scoff at someone who deliberately works within the rules to gift their children a degree of their assets to avoid breaking the IHT threshold? 

The OP has said that  the value of total assets  for himself and his spouse  amount to under £1mn.

He wants to leave the family home to his children.

With two nil rate bands and two residential nil rate bands this can be done without paying a penny in IHT.

Therefore offering "avoiding IHT" as a reason for setting up the trust would be seen as on the weak side?

xylophone

https://www.farleydwek.com/mitigating-social-care-costs/
There is a discussion in the above on pros and cons but it is made clear that
There can be “no guarantees that there is a fool proof way of avoiding the value of the home being taken into account in means tested”.

https://www.aprilking.co.uk/making-a-will/steer-clear-of-asset-protection-trusts/
Those peddling Asset Protection Trusts often say that the transfer would not be deemed to be a deprivation of assets because at the time of making the transfer, there was no immediate need for care and no foreseeable need in the future. Whilst the motive for making the transfer certainly is the key issue, consider that there is no other reasonable explanation for making the transfer. This is particularly true if you continue to live in the property after transferring it to the trust. Some companies cite ‘avoiding probate fees’ as a possible motivation but in most cases, you will not avoid the requirement for a Grant of Probate on your death, as this is needed in most cases. In the absence of a reasonable explanation for the transfer, it is likely the Local Authority will conclude that a deliberate deprivation of assets to avoid care fees has taken place. This has been confirmed by Local Authorities who are taking action against people who have used these type of trusts.

Sailtheworld

Arguing a trust has been set up to avoid probate isn't going to fly. It's £215 which is less than it'll cost to set up the trust in the first place.

I do think it's the house element that people object to - there's an emotional aspect to it. Arthur might feel better if he saved up a separate pot to cover any future care fees. At 65ish he would expect to pay less than £40k and wouldn't need that much if he planned to use state pension & personal pension accrued after 45+ years of continuous work to part fund it. The house could then be passed to the children.

Other than doing what he's done there aren't many options open to him - that's probably as it should be. He can afford the care and should pay for it. Leaving the residue of his estate to his children should be a secondary concern and it's not in the interest of the taxpayer to fund his children's inheritances.

The best way to avoid paying for care is to have no money. I know Arthur isn't impressed by such people but going through life spending every penny and not increasing net worth sounds like a miserable existence. Arthur has better options as a result of his hard work than these people.