- December 10, 2018
- Posted by: Graham Tester
- Category: Finance & accounting
Who will ultimately benefit from your home, will it be you, your family, the taxman, or the local council?
‘It’s fair to say your home will last longer than you, so what happens to your home in later life or if you die whilst still living in it?’
“For me, it’s ‘me and my family’ every time and I’m pretty sure that’s your answer to! But what arrangements have you put in place to make that happen?”
Mark Shubrook, Independent Financial Adviser for Premier Financial Group explains how to protect ownership using Trusts, Insurances and some sensible Estate Planning.
Living out your years in later life
Surprisingly many people are still unaware that the cost of care in later life could be their own responsibility. Their assets will be means-tested by the local authority. The local authority will look to use the person’s assets until they reduce to a lower limit of £14,250. Only when total assets fall below this, will the local authority will take over paying the fees.
The repercussions being, that one-time wealthy people could end up passing on very little or nothing to their loved ones.
A misconceived idea is to transfer the ownership of the property to grown up children, thus giving them the inheritance early. This is often on the perception that taper-relief rules apply once the parent survives 7 years. Unfortunately this is not the case. The seven year rule applies to inheritance tax liability and not local authority care. In addition, the local authority will view this as deliberately depriving yourself of the asset. And just to ram home this is a bad idea, should any of the children fall into debt or get divorced, the home may become a forced sale as part of a settlement.
A workable solution is a ‘bloodline’ or ‘property protection’ Will that leaves half of the house to the children in a Trust that protects half the value of the house. The terms of the trust would state that while the deceased’s spouse is still alive the children can’t have the house.
Where a ‘bloodline’ Will has been used the local authority assessment will reveal that the person needing care only owns half the home. Therefore only half the value of the home can be called upon to pay for care fees. The other half would be held in trust for the benefit of the children.
As a real life example, a friend of mine’s father passed away some time ago leaving his estate to his Mother. Shortly after, she needed long term care after developing Alzheimer’s. She lived well into her eighties and eventually died in a care home. As the estate was in her name it was made available to fund the cost of her care and so it did.
Had they set up a bloodline Will several years ago when the father passed away, my friend would have inherited an estimated £300,000. This is one of the reasons I took interest in Financial Services when I was younger, so that I could do my bit to prevent it from happening to others.
The financial implications of an unexpected bereavement
This type of planning can benefit couples of all ages. Consider a couple in their thirties with two children. Should one the parents die and the survivor remarry, this will cancel any existing Will that is in place. Should the other parent now die the new spouse takes the inheritance and the children will be excluded. This is commonly referred to as sideways disinheritance and is another good reason to protect half the house.
“The key point to take away for all couples of all ages is just because your children are named in your mirror Will does not mean they are guaranteed to get anything at all.”
Peace of mind through insurance
Another vital area to consider when owning a property with another person is insurance. Many couples are only able to get onto the property ladder by using the combined income from both parties to borrow enough to afford the house. Serious problems can arise if one party is no longer able to work either due to ill health or death. In these cases the other party may face the prospect of having to sell the property whilst dealing with the grief of their lost partner.
A lot of younger home owners will tell me that the chance of them needing this sort of cover while they are young is so unlikely they might as well not bother. However, by taking out these policies early in life they benefit from lower premiums due to age. Any health problems prior to a ‘later in life’ application could lead to either an exclusion of a certain condition, a loading in premiums or a declined application. This is all on top of a significant increase in premiums due to an older age!
For more information about helping your family benefit from your greatest asset, please do get in touch with me, Mark Shubrook on 01603 750025 or drop me an email at firstname.lastname@example.org. We do not charge a fee for initial discussions, so fire away, ask me a question!