Home Protection Trust, will it be a costly mistake?

oliveoil54

I am in the process of setting up a Home Protection Trust, originally to protect the value of my home for my children to inherit.
I lost my late husband to Alzheimer’s & Covid late 2020, he spent the last months of his life in care & the costs soon exhausted our savings. They couldn’t touch the house because I was still living in it, & I’m over State Pension age.

As I understood it the Trust also protects against any possible claimant on the property by a Trustee’s Spouse in an acrimonious divorce, & if a Trustee’s business goes bankrupt. 

As I’ve not been well & recently widowed I’ve taken nearly a year to make up my mind & the Solicitor is pressing for payment of the £1600 fee (as they drew up the paperwork September 2021). I will admit to not really understanding the fine print in the Trust agreement.

But have just recently realised that the Trustees on selling the property after my death would have to pay CGT on any increase in value of property. 

Can anyone advise is CGT calculated from the difference between the purchase price 4 years ago & the property value at point of future sale?
Or is it on the value of the property on the date of it entering the Trust to point of future sale? 

Can extensions & improvements to the property be allowed for to reduce CGT?
IHT apparently the Nil Rate Band ie the £325,000 allowance does not apply to this type of trust & it triggers an immediate 20% entry charge with a further 6% charge every 10 years. 

Although this information was in the letters sent by the Solicitor I do not feel it was verbally discussed properly & my understanding of the procedure was limited.

Also what happens if I want to move or downsize? I know my children would have to authorise the sale & purchase of a new property for me to live in, but would they have to pay CGT on the sale of the house in these circumstances? 

Does CGT also apply if they have to sell the property to fund any future care for me?

I now have to decide do I go ahead with the Trust & accept the possible losses to the value of the property by CGT & IHT, especially as I will have to pay the £1600 fee anyway?
Or do I just forget it accept I’ve made a very expensive mistake & pay the Solicitor the £1600 fee?
Or do I have any reasonable chance of getting them to reduce the fee as I probably won’t be proceeding with the Trust, even though they have provided all the paperwork with an explanation of the facts above, & it’s just my lack of understanding the consequences? 

If so can anyone suggest how I should go about it?
Any advice would be really appreciated?

The_Unready

"I will admit to not really understanding the fine print in the Trust agreement."

If you're paying £1,600 to a solicitor to draw up your trust (which you may, or may not, subsequently action) then wouldn't they be the first port of call for the questions you've listed?

You've stated that "...they have provided all the paperwork with an explanation of the facts above, & it’s just my lack of understanding the consequences?", so I don't understand why you're not asking them for further clarification in the first instance?

oliveoil54

Thanks for your reply.
I have spoken to them. They are saying that the information was clearly advised in the paperwork sent last September, and that they have done the work preparing the Trust, & they now want payment. To a certain extent it’s my fault that I didn’t go into the detail of it all & the consequences of CGT & IHT. If I want further advice from then on CGT OR IHT planning it’s a further £285 per hour plus vat!
 I really don’t want to pay out yet more money to find out that this is going to cost my children, the Trustees more money that they definitely don’t have in IHT straight away, apparently it’s an immediate 20% charge on all of the property (as nil rate band doesn’t apply in this trust) I had to Google what that meant. I have been so naïve regarding this, I normally do a fair bit of research myself on these things.
After my husband’s death I just wanted to protect the house for my kids, & I went into it blindly. If I’d done the research I’ve done now (with the help of my son) after I first got the Trust Documents to sign in September, I probably would have cancelled it. 

Now my first thought was I’m going to have to pay the £1600 anyway so I might as well go ahead.
But further research on CGT & especially IHT makes me think it’s going to be an immediate loss of 20% IHT & if I want to move or I die, the children will be paying 28% CGT on every occasion.
So do I pay the Solicitor’s outstanding fees & but don’t complete the trust?

theoretica

oliveoil54 said:

Thanks for your reply.
I have spoken to them. They are saying that the information was clearly advised in the paperwork sent last September, and that they have done the work preparing the Trust, & they now want payment.

What exactly did you ask the solicitors to do?  It would seem usual to me, that they would provide the information, then afterwards you would ask them to go ahead if you wanted them to. Did you ask them to go ahead after they sent the paperwork in September?

 

Personally, my understanding is that the tax and paperwork requirements for trusts are getting increasingly restrictive and designed to discourage exactly what you are trying to do. Also, if the local authorities think you set up a trust so that they - rather than you - would pay care fees they can charge you anyway under deprivation of assets so chances are a trust may not have the benefit you hope for.

And personally, I would rather my parents had the best care and spend whatever they need to rather than I potentially inherit a bit more.

PennyForThem_2

You say that you are unwell so I would definitely be wary of 'deprivation of assets'.  If you live in England then isn't the government limiting the amount spent on social care?

https://www.gov.uk/government/publications/build-back-better-our-plan-for-health-and-social-care/adult-social-care-charging-reform-further-details#:~:text=in spring 2022.-,Summary,personal care over their lifetime.

Cheaper to take out insurance to cover this amount in the eventuality you may need it!

Browntoa

As above, deprivation of assets applies

History of ill health recently so an expectation that care "could" be needed 

This should have been done many years ago ( if at all )

Personally I'd rather live put my twilight years in a decent care facility if needed than In the cheapest one chosen by your council. 

I've seen both types of care home and no way would I choose the cheapest council option just to "leave money to my children" 

oliveoil54

Thank you all so much for your replies. However I’m in a relatively unique position the Care Home my late husband was in also happened to be LA. I didn’t choose it for that reason, but because of the excellent quality of the Care. The Manageress had worked there since being a young carer & her staff & residents & family all thought she was wonderful, the staff were so kind & caring.  It had really good write ups, & was highly recommended on a FB search of the local towns by lots people who had relatives in there & I had an Amazon Echo Show in husband’s room so I witnessed his Care first hand. Inside the rooms were spacious & clean & as well decorated as most LA Care Homes. There were lots of activities & celebrations etc. Outside was very scruffy, & definitely in need of an update, & it didn’t look as posh as some I’d seen. It’s close to me & would definitely be my first choice should I ever need care. It is quite large & given the nature of Care Homes there are inevitably vacancies. So I wouldn’t be bothered about going into LA Care locally, as I have first hand experience of it. Yes I agree the trust should have been done many years previously, but as I am going to be charged by the Solicitor anyway, is it worth taking the chance that I hopefully don’t need care for the next 5+ years? 

My biggest concern & where I really struggle to understand are the CGT & IHT liabilities on my Trustees - my children, when placing a property currently valued at £300,000 into such a trust? Especially where the nil rate band for IHT does not apply to this type of Trust?

QrizB

You need to consider:

• Most people don't need residential care, so there may not be any care costs to worry about;
• Everybody dies, so there will definitely be CGT if you set up the Trust.

Have you discussed this with your children? What do they think?

Keep_pedalling

The only reason you are considering this is to avoid having to pay care cost if you ever need it, this is clearly deliberate deprivation of assets and any LA will treat it as such. Frankly the only people who benefit from these trusts are the sharks who charge fat fees for setting them up.

Frankly you would be mad to rely on a LA funding care should you need it. For a start you are going to have to get very decrepit before any funding gets approved and the choice of care home will be limited, and over time will become increasingly restricted. 

Browntoa

Personally I would write off the money already charged and leave things as you are .

You've either been poorly advised by the solicitors ( make use of their and the SRA complaint procedure for that ) or failed to understand the complexity and results of setting up a trust .

As pointed out , there is a very high chance that ANY actions taken now to protect assets will fail and be successfully challenged by the council

Clowance

oliveoil54 said:

. It’s close to me & would definitely be my first choice should I ever need care. 

Not sure how much choice the local authority would allow - for example if at the point you need it you may be in hospital and no vacancies at this home - they would put you in the first available (at least where I live).