Helping elderly parents move house - is this proposal workable?

Mark__H

Both my parents are now in their early 80s

They’ve lived in the same modest semi-detached house all their married life. It’s served their needs but my mum is now struggling with the stairs, and the garden, whist not huge, slopes severely downwards from the house and is surrounded by excessive trees and vegetation which my dad is struggling to keep on top of.  I’d guess the house is valued in the region of £150k. The area in which they live has also become more and more rundown over the years and they have expressed a desire to move out of the area to a bungalow type property. However, they are ‘trapped’ in their current property as the sale price of their property plus their modest savings would not cover the additional cost of a bungalow in a nicer area.

I have one sibling, a sister, who is a single parent currently in rented accommodation. She does have a partner who is also in rented accommodation and they are hoping to get on the property ladder with their own place in the near future.

My wife and I are retired / semi-retired, are mortgage free on our property and have a reasonable amount of savings, mainly in fixed rate accounts.  

I’ve sat down with my wife and we’ve have hit upon an idea to help my parents live out their later years in a property which better suits their needs but not sure whether we’re missing any obvious pitfalls?

We were was going to suggest they put their property up for sale, let’s say achieving a £150k sale price. After keeping £10k back for fees and costs, they give me £70k and my sister £70k. ( I have no idea what their Will provision is, or even if they have one, but I’m assuming this is what would happen if they were to stay in their current house until their passing).

My wife and I would then use our £70k and add it to some of our own savings, say another £180k, and use the resultant figure of £250k to buy a bungalow of my parents’ choice (in mine & wife’s names) which my parents could live in for the rest of their days. We figure we might have to put some kind a ‘rent free for life’ lease in place to legalise the position?      

Result
Parents:  Cash neutral with the exception of legal and moving fees and they get a more comfortable later life in a property which better suits their needs.
Sister: Gets a £70k cash lump sum towards a step on the property ladder.
Me/Wife: We lose around £5kp.a. in interest income on the £180k of savings, which we can live with. Also, this may be offset to some degree by any appreciation in the value of the bungalow.  I’m guessing when that unfortunate time comes for my parents passing, that dealing with estate issues at that time will also be a lot simpler without a property in their name involved.

Part of me thinks that this all sounds rather cold and calculating but the other part of me sees it as a practical solution to the situation as it stands.   

Any thoughts on the above and on anything else we would need to consider would be very welcome.   

Shelldean

What happens when you parents may need to live in a nursing home?

By giving you and your sister their assets, they have left themselves unable to pay for care. Google deprivation of assets!

Keep_pedalling

What happens to them if you run into financial difficulty, get divorced or die before they do? Sorry but to give up your security in your latter years is not a wise thing to dd. There is also the issue of deliberate deprivation of assets.

If you have the spare cash why not lend them the additional amount and put a charge on the new home? That would save 3% additional stamp duty and avoid a CGT issue when the time comes to sell the house.

theoretica

Things to consider include:

Deprivation of assets - if your parents give away 140k and then need care paying for who will pay? For benefits purposes they are likely to be treated as though they still have this money.

Capital Gains tax - for you when eventually selling the bungalow.

Security for your parents - if your finances collapse or otherwise life goes very unplanned.

Who would pay for maintenance?

Have you thought about if instead the bungalow was bought 150k from your parents, 100k from you - owned 60%/40%?  It would need to be sold to give your sister her eventual inheritance, or if your parents needed to move into residential care, but it would safeguard their money for that.  Any help you gave your sister, or buying out her inheritance would need to be separate.

RAS

Deprivation of assets applies to benefits and to care costs.

So if mum needs care visits in the future, she would be assessed as if she still had access to £140-150K. Ditto if either of them needed residential care.

elsien

I think any mention of inheritance needs to be off the cards. No-one has or should bank on any inheritance until the person leaving it actually passes. Life has a habit of throwing up curveballs so relying on money from one’s elders should never be part of anyone’s financial planning. 

So leaving your sister getting a lump sum out of things, the plan that offers most security for your parents is for you to loan them what they need with a charge on the house. Any property in your name leaves them vulnerable to being turfed out if the property is needed to be realised as an asset - divorce, bankruptcy, needing to claim means tested benefits, you or your wife needing care for any reason - accidents can happen at any age. Or if you and they have a huge falling out -it happens. They may be unlikely scenarios but your parents absolutely have to cover all the “what ifs” before making any decisions. 

Have they/you checked what they will need to buy a bungalow or suitable other property in a different area? 

TBagpuss

A better option would probably be or them to sell the property and use thesale proceeds as a depsosit on a more suitable property. 

IF there is a shortfall, you can lend them the differene, with the loan secured againdt the property by way pf a formal legal charge.

This could be for the appopriate amount plus interest (e.g. you lend them £100,000 and have a chage for £100,000 plus interest at 1% above BoE base rate payable when the house is sold OR you could have a charge that said you have lent them a sum equal to 40% of the proeperty value and you get back 40% of whatever it is worth on sale. The charge can set out the cuircumsntctes in which it is payable - this could be upon the property being sold or upon them bothdying or ceasing to occupy it as their main residence . That would give them security against the possibility of you wanting to get your money back early.

If they gift the money to uyou and your sister this potentially creates problem s with regard to depreivation of assets should they need care. (and if they are in receipt of, or need to claim means tested benefits)  There could also be issues with regard to gifts with reservationif you promtly loaned the money back to them, unless they paid open market value rent .

Another option would be to buy the property in the joint names of yourself and your parents with a declaration f trust setting out what shares you had and the circumsntaces in which it could be sold. Like the charge back optionb, this avoids the ossues of deprevation of assets, and the wording of the deed could ensuethat they were protected , however, as it would be asecond property for you and your wofe it would trigger higher stam duty and potential CGT.

If they want to make gifts to your and your sibling, a thord option of course would be forthem to sell the property and for your to lend them a bit more - for instnace, if their house sold for £150,000, and they gave £10,000 each to you and your sibling, kept £10,000 as liquid savings for remergencies, and you loanedthem £130,000 to allow them to buy a noew property with that loan protected by a charge, they could still feel they were helpding you both, still move, you have some security and they are less likely to run into problmes with deparivation of assets as tey have given away a much smaller proprtion of their total ssets, at a time when they have no immediate expectation of needing it for care needs, and they still have the bulk of their assets available for care costs dhoul they become necessary. 

Mark__H

Thank you for all the helpful responses. Very much appreciated
I think with having grandparents who never needed any kind of care during their lifetime and parents who are relatively fit & healthy (for their age), the thought of residential care / nursing homes etc has never really come into our thought process. Now we understand the need to take the deprivation of assets issue into consideration. As suggested. it may be better that we explore the loan to parents option with either a pro rata % ownership of the new property or a charge on the property. 

elsien

It's  not just if they go into care, it's if they need care at home as well - that would raise the same types of questions. It's not automatically DDA - a large part of it is the intention behind the gifting but it's hard to see how just giving the bulk of their estate away and creating a dependence on others when they only have modest savings would really be of benefit to them in the long run. 

Keep_pedalling

Mark__H said:

Thank you for all the helpful responses. Very much appreciated
I think with having grandparents who never needed any kind of care during their lifetime and parents who are relatively fit & healthy (for their age), the thought of residential care / nursing homes etc has never really come into our thought process. Now we understand the need to take the deprivation of assets issue into consideration. As suggested. it may be better that we explore the loan to parents option with either a pro rata % ownership of the new property or a charge on the property. 

The issue with making it a joint purchase is that it would involvement of an additional 3% stamp duty on the purchase, so a charge against the property would be the better option. 

thegreenone

Would your sister and her partner be able to buy the house from your parents - full value?

Would your parents sell and rent something more suitable.  I know, I know ......... but as you and your wife sound very saving savvy, perhaps you could help them invest their money so it lasts.  With pensions and attendance allowance (?) and a drip-feed of interest, would it be possible to pay their rent, no upkeep, money to live on and enjoy the next 10 years without having to worry and knowing they could leave some money to you and your sister?