News | Protecting your home from the cost of long term care
A report this week says that more than 20,000 pensioners were forced to sell their homes to pay for residential care last year, an average of nearly 60 a day, and a 17% increase since 2005. Experts say the figure is likely to continue rising over the next few years.
Lauren Smith, wills and probate solicitor at Watson Esam says that she is regularly asked if anything can be done to prevent property being taken into account when long term care is needed – and Lauren says that there are a few things that can be done to minimise the risk. You can take out an insurance policy to pay for the long term care, for example, but there is another effective solution – which is not a loophole in the law – and that is to consider a “property trust will”.
Many people do not realise that they can own their home in different ways, and that the choice you make can have an effect on what happens to it if you die. Most people own their home as joint tenants, which means that if one person dies, the property automatically passes to the survivor. However, you can also own your home as tenants-in-common, which means that each co-owner owns a separate share in the property which they can then dispose of during their lifetime, or upon death, as they wish. The advantage being that each owner can leave their share of the house to a beneficiary other than the co-owner when they die.
If the home is owned as tenants in common a property trust will can be drawn up. This way, when one of a couple dies, they can leave their share of the home in trust for the spouse, who can have the benefit of it for the duration of their lifetime, but after their death the share of the home would revert back to the children, or other chosen beneficiary. If the surviving spouse then needs long term care, the local authorities can only take into account their own share in the home, and not the amount held in the trust. Watson Esam has been helping clients make this type of wills trusts for many years and can also help in severing the tenancy of a property so that the house can then be owned as tenants in common if this is necessary.
People regularly think this means that they have to stay in the home until they die – but in fact they don’t if they don’t want to. For example, they can sell the home and buy a smaller one with the ‘trust’ share and do as they wish with their remaining share of the sale value. The trust then owns the property and it would pass to the children when the surviving spouse dies.
Alternatively, the survivor could purchase a home with half of the ‘trust’ and half of their own share of the sale value, at which point they can do what they wish with the remainder of their share, and the rest of the trust could be invested, with the survivor benefiting from the income.&nb The share of the home that is owned by the trust and the investment then passes to the children when the surviving spouse dies.
If the survivor has to go into care, the local authorities could only take account of whatever their share in the property is. If this is owned 100% by the trust – that is nothing, and if it is 50%, then it is 50% of the value of the property. The rest is protected for the ultimate beneficiary.
People often worry that they may be able to be forced out of the property by the beneficiary of the trust, but this is not the case – as long as they keep up with the repairs and outgoings of the property, they cannot, they are protected by the property trust will.
Beware of leaving 100% of the value of the property to your children (you can only do this if one person owns the house outright). If the owner dies and leaves the property in trust to the children and the survivor then needs long term care, none of the value of the property can be taken into account. However, if the owner outlives the spouse and needs long term care – 100% of the value of the property is at risk!
You should also be aware that this is not a way of avoiding inheritance tax as, because the surviving spouse has the right to use the half of the house left it trust, it is regarded as owning the property for the purposes of inheritance tax.
For further information and advice on how best to protect the value in your property, please contact Lauren Smith on 0114 321 1888, or email lauren.smith@graysons.co.uk 16 November 2010
