If you die without making a Will your estate will not necessarily pass on to whom you want.
If you die without making a Will your estate will not necessarily pass on to whom you want.
Wills are not just for passing on your estate. They can be used for Inheritance Tax planning, appointing Guardians for children, passing on businesses, protecting assets from care costs etc.
Steps can be taken to protect assets from being sold to pay for long term care fees.
If you have mental incapacity no one (including spouses and close family) has automatic rights to take over your affairs.
If you are a owner of a business will it continue after your death?
How do you reduce the impact of inheritance tax?
Do you and your family know where your Wills are kept?
Do you need help in administering an estate?
A frequent question is why should the elderly have to sell their homes to pay for care? With many people wondering whether it is possible to avoid care home fees? The article below covers issues around care home fees.
The Chancellor anounced revised proposals for how care fees will be funded after April 2016 in his 2013 Budget speech. The headline announcement was that indiviuals would only have to fund the first £72,000 of social care and the limit of capital above which an individual would have to fund all care fees would be increased from the current £23,250 to £118,000.
On the face of it this is all good news but digging deeper nothing will change very much - although the final small print has not been isssued. The things to note are that the £72,000 cap only applies to social care - it does not include "hotel" costs such as accomodation and food, which can make up a large proportion of overall fees. Raising the capital limit may not have much impact (apart from local authorites having to pay social care costs over £75,000).
I have done some "sums" for a person with an income of £250pm and capital of £250,000 (a house/flat in the South East, say) who goes into a care home and pays £650pw but the local authority will only fund up to a maximum of £540pw. Without going into the detailed calculations, the £72,000 cap will be reached after 5 years and it would take 25 years for the capital to be reduced to a level where the local authority will contribute towards other costs. The average stay in a care home is under 5 years. So the indiviual would pay the same in care fees as he would do under the current arrangements, i.e. all of his care fees, and the hosue would need to be sold to pay for it (unless it is rented out or other measures taken to protect it).
The rules governing long-term care costs are complicated and are interpreted in different ways by different Local Authorities. This section gives the general rules. Before going into care you (or your family) should seek specialist advice (which I can provide).
If you have to go into permanent care in the community you may have to pay for some or all of the residential costs. The Local Authority (“LA”) will carry out an assessment of your income and means. If your income is not sufficient to cover the residential costs (after allowing for a personal expense allowance of £25.50 per week) it will then assess your capital assets. If it assesses your capital worth to be more than £23,250 you will have to pay all the residential costs. If it assesses your capital assets to be worth less than £14,250 you will not have to pay any of the residential costs. If it assesses your capital assets to be worth between £14,250 and £23,250, it will assess you as having income of £1 per week for each £250 of assets between £14,250 and £23,250 plus your actual income (less £25.50 per week) and will deduct this total from the care fees and pay the difference.
A partner’s (share of) capital is not taken into consideration.
In assessing your capital worth, the LA will include anything you own that has a value, including, after 12 weeks of care, your (or your share of the) house (less 10% for notional costs of selling or the actual costs of selling, if the property is sold) and your share of any money in joint accounts (but not capital investment bonds).
However, if your partner (spouse, civil partner, “common law” spouse or same sex partner) is still occupying the house, the value of the house will be disregarded. Also, if a relative aged 60 or over, a relative who is incapacitated, an ex-partner who is a lone parent or children under the age of 16 are still occupying the house, the value of the house will also be disregarded.
The LA cannot force you to sell the house and cannot itself sell the house in order to get its fees paid. However, the inevitable result may well be the sale of the house if any other assets have a small value. The LA also has discretion to levy a charge on the house if both you and the LA agree (in which case, on your death the house will have to be sold to pay the fees). The LA can even make you bankrupt to recover unpaid fees and the Trustee in Bankruptcy can recover assets given away up to 5 years before the bankruptcy.
Giving a share or all of an asset to a child/children can result in difficulties because:
To protect a house it will be necessary to first ensure that it is owned by the co-owners (the co-owners do not actually need to be married, just to be co-owners and can be same sex) as Tenants in Common.
There are two routes than can be taken:
i) Family Protection Trusts (“FPTs”)
These are trusts written in your lifetime. Assets up to the Nil Rate Band (currently £325,000, 2011/12) are transferred into the trust (by “the Settlor”). A couple can both do this, so using up to £650,000 of assets. The trusts allow the assets in them to be returned to the Settlors at a later date.
If the assets are transferred when a Settlor is in reasonably good health, with no expectation of going into long-term care, then there is no “deliberate deprivation of assets” against the LA and, provided he/she does not go into care within 6 months the only assets that could be at risk for care fees are assets held outside of the trust (excluding capital income bonds), but subject to the limits mentioned above (£23,250 etc).
If the assets are transferred when the Settlor is not in reasonably good health, or there is an expectation of going into long-term care, or a social worker has been involved then this could be deemed to be “deliberate deprivation of assets” against the local authority. However if the assets are transferred into the trust more than 6 months before going into care then the local authority is not able to recover these assets. However, in this situation all assets held outside of the trust (including capital income bonds) are at risk for care fees.
Further trusts (not FPTs) can also be used for excess assets over £325,000 (or £650,000 for couples).
One advantage of this route is that assets could be protected if both of the couple end up in long-term care. Other advantages (usually more beneficial than the care cost savings) are a reduction in probate costs and quicker access to the assets in the trust on death (as the assets in trust do no need to go through probate), protection for family members (only specified beneficiaries can inherit – so “in-laws” can be excluded), unreliable children are protected from themselves (as the trustees have control of the assets), if the Settlor loses mental capacity the trustees can look after his assets (but Lasting Powers of Attorney should also be considered), the Settlor’s partner’s future partners are excluded and assets in the trust eventually passing to children will not increase their Inheritance Tax liability.
If the Estate is large enough and the further trusts have been used, the assets in these further trusts may pass free of IHT.
A possible disadvantage is a perceived loss of control of the assets going into the trust. However the FPTs are set up so that the Settlor retains a large degree of control.
I work in conjunction with a long established firm of solicitors that specialises in these trusts and will provide support if they are challenged by a Local Authority.
ii) Property Protection Trust Wills (“PPT Wills”)
Each co-owner writes a PPT Will. In PPT Wills each co-owner leaves their share of the house to a Trust (technically a life interest trust). The beneficiaries of the Trust are the children (or other nominated beneficiaries), but the Trust gives the surviving co-owner the right to live rent-free in the deceased co-owner’s share of the house (the surviving co-owner is known as the “life tenant”) for as long as they like. If the life tenant remarries or goes into care, the deceased co-owner’s share is protected and goes to the children (or other beneficiaries) when the surviving co-owner dies.
The advantage of this arrangement is that if the surviving co-owner goes into care their share of the house only will be assessed. Under current guidelines (Charging for Residential Accommodation Guide (“CRAG”) published by The Department of Health), the surviving co-owner’s share of the house will be valued at less than his/her share because the market value of the house will be reduced due to the nature of the ownership. A 10% reduction will be applied (to allow for the costs of selling) and, in fact, the value of the share may very well be nil (CRAG paragraph 7.014).
A PPT Will can also protect your share of the property for children of a previous relationship.
The disadvantage of this arrangement is that if both the co-owners go into long-term residential care then the property may have to be sold and the proceeds are then vulnerable to attack by the LA. A similar problem arises if the survivor goes into care and the property is sold.
The gift of the property into a trust counts as a gift to the life tenant for Inheritance Tax (“IHT”) purposes, and so if the life tenant is a spouse or civil partner this does not use up any of the deceased co-owner’s Nil Rate Band (“NRB”) for IHT purposes (currently £325,000 2011/12). This is important under the new transferable NRB rules.
It is possible to protect assets other than the family home. If instead of leaving these assets to a partner, these assets are left in a Flexible Life Interest Trust ("FLIT" - technically a defeasible life interest trust)for the surviving partner the surviving partner is allowed to have an income from these assets but not the capital (which typically passes to the children on the death of the surviving partner). As the assets in the trust do not belong to the surviving partner they do not form part of their capital when assessing long-term care costs, if they should end up in care.
The option of a PPT Will is not available to single people (as there is no-one else to protect).
However the FPT route is available. The same comments apply as for couples.
These are insurance policies that pay out care home fees. They can be purchased before you go into care (and are not expecting to) (called “pre-need”) or once in care (called “at-need”). Both types of policy are quite expensive and there is a limited number of insurance companies providing this product.
The cost of at-need schemes depends on individual circumstances but typically would be about 4 times the annual residential fee (depending on age and state of health).
I can write PPT Wills (with or without a FLIT) for you and can provide FPTs (drafted by specialist solicitors) and introduce Independent Financial Advisors who specialise in long-term care fee plans.
It may not be possible to avoid selling assets altogether but there are ways that you can limit your liability; but is essential to have good independent professional advice before embarking on any course of action, which is where I come in.
Please contact me if you need assistance in any of the areas above.