Planning to minimise IHT involving nursing home fees

Busymole

Thanks Grumpy_Chap and mybestattempt for your comments

I had earlier read the AgeUK document but missed the reference to "main or only home". That supports my wife's view that attempting to get local authority contribution will be difficult and may only cause pressure to move the aunt to a cheaper care home.

I think we have more or less decided to seek advice from the solicitors who are the executors of aunt's will. 
I myself am not clear how any loan made by the 2 nieces can be repaid from an estate that consists of a property that will not be sold and is in the ownership of those who made the loan.

Thanks for your help.

Bookworm105

Busymole said:

Thanks Grumpy_Chap and mybestattempt for your comments

I had earlier read the AgeUK document but missed the reference to "main or only home". That supports my wife's view that attempting to get local authority contribution will be difficult and may only cause pressure to move the aunt to a cheaper care home.

I think we have more or less decided to seek advice from the solicitors who are the executors of aunt's will. 
I myself am not clear how any loan made by the 2 nieces can be repaid from an estate that consists of a property that will not be sold and is in the ownership of those who made the loan.

Thanks for your help.

seeing the solicitor is the wisest move
obviously a loan cannot be repaid without someone having the liquid funds from which to do so.
A charge on a property that securing a loan which has to be repaid is, of course, not liquid funds until the property is sold or someone takes out another loan (mortgage) to pay off the first 

xylophone

Is there any reason why the OP's wife and sister should not  request their aunt's solicitor to arrange a legal agreement to pay their aunt's fees against a first charge on the property that she owns?

Bookworm105

xylophone said:

Is there any reason why the OP's wife and sister should not  request their aunt's solicitor to arrange a legal agreement to pay their aunt's fees against a first charge on the property that she owns?

practicalities?
sister will inherit on aunt's death and it is now and will continue to be sister's main home until her death
so sale and pay back requires 2 deaths: aunt and sister.
although sister is not technically a protected relative, so sale could possibly be forced?

Grumpy_chap

Bookworm105 said:

xylophone said:

Is there any reason why the OP's wife and sister should not  request their aunt's solicitor to arrange a legal agreement to pay their aunt's fees against a first charge on the property that she owns?

practicalities?
sister will inherit on aunt's death and it is now and will continue to be sister's main home until her death
so sale and pay back requires 2 deaths: aunt and sister.
although sister is not technically a protected relative, so sale could possibly be forced?

Although that is not necessarily any more complex than the situation as and when the Aunt dies.  

At present, the Aunt is in a nursing home (and requires funds)
OP lives somewhere.
Sister lives in the house owned by the Aunt (but never the Aunt's home)

In the normal expectation of sequence, the Aunt will pass before OP and before OP's sister.
Assuming the sister remains at that time living in the house owned by the Aunt (and the house is unencumbered), after the Aunt's death, the house will be owned half each by OP and sister but sister will have residence in the house.
It leaves the same question as to how the OP will realise any value from the half house she inherits without evicting sister.
As time passes this might become more complex - consider the OP claiming means-tested benefits, or the OP requiring their own care fees to be met...

xylophone

At present, the house is owned by the aunt.

If the legal agreement for the OP and her sister to pay the fees (in effect a secured loan) against a first charge on the property is set up, then when the aunt dies, the value of  her estate is reduced  by the  amount of the loan.

The OP and her sister inherit an encumbered property.

There may (or may not) be IHT to pay - if there were, then the OP and sister would have to pay it.

As both women appear to be in very comfortable financial circumstances as a result of receiving other legacies, this might not be a problem.

Grumpy_chap

xylophone said:

At present, the house is owned by the aunt.

If the legal agreement for the OP and her sister to pay the fees (in effect a secured loan) against a first charge on the property is set up, then when the aunt dies, the value of  her estate is reduced  by the  amount of the loan.

The OP and her sister inherit an encumbered property.

There may (or may not) be IHT to pay - if there were, then the OP and sister would have to pay it.

As both women appear to be in very comfortable financial circumstances as a result of receiving other legacies, this might not be a problem.

This still leaves the challenge that, on the Aunt's death, the loan cannot be repaid by the Estate unless the house is sold. 
House cannot easily be sold because the sister lives in the house.

Grumpy_chap

[Deleted User] said:

I've not been following this but paying money to the aunt to allow her to pay the care home fees would be a PET for IHT (subject to normal expenditure out of income exemption).  If there was a loan outstanding on death and for some reason a decision was taken to write it off, presumably that would be a CLT as the transfer of value is not to an individual.  Whether either is an issue will depend on other facts.  

That comment about a PET is the reverse of what is expected to happen here.
The Aunt is not paying money down to the next generation (expected ordinarily to outlive Aunt).

The OP & Sister will be paying money to the generation above (expected ordinarily to pass first).

Also, the OP & Sister propose to pay from a previous legacy they both inherited, not income, plus propose that the money passed to the Aunt is a loan secured against the Aunt's assets (house lived in by Sister).

It remains unclear how the Estate would repay the loan, given the whole premise of the idea was built form the Aunt exhausting other liquid funds.

Grumpy_chap

[Deleted User] said:

OK.  But the gift to the aunt to pay the care home fees would still be a PET.
I thought that there was talk about (i) a gift, or (ii) a loan.  

I read that it would be a loan:

Busymole said:

We are also considering a scheme whereby the continuing care costs are paid by my wife and her sister and recorded as a debt against the aunt's estate, which would then be deductible from the estate's value at her death. 

A gift would not reduce the value of the Aunt's Estate, so not avoid IHT.

[Deleted User] said:

Hence my comments about the risk of there being a CLT if, after death, it is decided that the estated does not need to repay the loan.

I am not familiar with the abbreviation CLT and an internet search suggests "Cross Laminated Timber" which I think the context makes clear is not what you meant.

theoretica

Wouldn't the simplest way for the debts to be paid off by the estate to be in kind?  Eg X% of the house transferred to wife and sister to repay the debt and the other Y% transferred to wife and sister as inheritance?  It would be more complicated if the debt was due to other people.  It is not uncommon for beneficiaries who want to inherit a property to pay off debts to prevent a sale being necessary - and this seems similar to that.