HMRC...V.. INTEREST OF POSSESSION IN WILLS

Schooee

Hi, I'm looking for some advice.

My wife are looking to protecting our 50/50 interest in our house.

We've been advised to alter our wills to include " interest in possession " so that if one of us has to go into care, the other's  50% share can still go to our two children upon both of our subsequent deaths if the other doesn't go into care.

My question is..... would this be classed by HMRC as a trust and when would it require registering, if so as a non taxable trust or what?

Every time I read advice I get confused and don't want to mess up big time or lumber our children with onerous responsibilities.

Thank you.

caprikid1

At the end of the day this will most likely be seen as deprivation of assets and will not give you the protection you desire.

If you are going to spend time on this you need proper legal advice. 

If it was 100% guaranteed everyone would do it.

Keep_pedalling

The will would create an immediate post death interest trust on the death of the first spouse at which point it would need to be registered with HMRC even though there is no tax to pay.

How old are you? What is the value of your home? Who is advising you to do this? 

Although quite common these trusts do complicate the finances of the surviving spouse a little and are not always worth the trouble of doing. If for instance your house is worth £800k then it is highly unlikely the care costs of the surviving spouse would burn through more than half that value, but if you are relatively young then the prime reason for doing it would be to protect your children's inheritance from the surviving spouse marrying and failing to make a new will.

Brie

So you own the house as tenants in common rather than joint?  

I think then the question to ask is what happens if one of you go into care.  Normally if one spouse only goes into care the house isn't taken into consideration should financial assistance be required to pay for that care.  I assume that this applies whether your are joint tenants or tenants in common.  Basically the council isn't going to make the other spouse homeless to pay for care home fees for the first one.  

But if you own the house as tenants in common should one be in care and the other be in the house but then die their share of the house can go to whomever is designated in their will.  So 50% could go to the children should your wife die when still living at home and 50% to your care home fees if needed.  Obviously the choice then is likely to be that the home would be sold but the kids would still get their 50%. 

At least that's how I understand it having seen friends go through a similar situation.  

Marcon

Worth reading this: https://www.radiotimesmoney.com/savings-and-investments/dont-trust-trusts/

doodling

Hi,

If the OP is proposing an immediate post death interest (IPDI) trust, created by the will, having changed ownership of a house from Joint Tenants to Tenants in Common (which needs to be done whilst still alive, usually at the time the wills are created) then:

1. It will not be deprivation of assets, assuming that the Tenants in Common ownership split was fair (usually 50/50 unless there is a very robust reason why it is something else).

2. The trust only comes into existence on the first death and only lasts until the second death.  The trust will need to be registered with HMRC but no tax will be due.

3. Because the house is part owned by the trust then there may be less flexibility for the survivor with respect to selling it, downsizing, etc. (although it is possible to make provision for some flexibility in the wording in the will).

4. There is some protection against the care costs of the first person to die and the care costs of the second cannot consume more than 50% of the house value.

5. Such trusts are common and relatively uncontroversial.  As others have said, they are a way of making sure that the first person to die has some say in where their half of the joint assets go, whilst still permitting their spouse to remain living in the house.  This is often important in families where people have remarried.

If the OP is talking about some other type of trust then in general:

1. There is a high risk that giving your assets to the trust will be considered deprivation of assets.

2. Such trusts are often sold by people who act as trustees in return for excessive ongoing fees.

3. Such trusts are highly taxed and often the target for more taxation.

4. You can lose control of the asset making selling, etc. very challenging.

msb1234

My mother’s house was owned solely by her until a few months before she suddenly died, when for some reason she changed it to TIC with my stepfather, with an 80/20 split in her favour. He was in respite care at that point and clearly would need residential care imminently. 

When she died, he had no savings, all the savings were in her sole name. He went into a home as a partial funder. As her executor I was unable to sell the house for over 2 years as he no longer had capacity, so the LA did not take his share of the house into account when carrying out the financial assessment. 

I had to apply to the Court of Protection for Deputyship, which took over 6 months, then was able to sell the house. Obviously all his share then meant he needed another financial assessment but I could distribute the rest of the proceeds from the sale to the beneficiaries. 

If your parents are going down the route of TIC, make sure both parents also give someone Lasting Power of Attorney as it will save a lot of complex situations further down the line. 

Schooee

Thank you all for your advice. It really does seem a minefield!