Clients often ask us how to prevent their house being sold to pay for care fees when preparing their Will. Did you know that the actual number of people who need elderly care is considerably lower than you might think. Notwithstanding that, it is important to consider what you can do to mitigate exposure to care costs in the future.
Some think that putting your house into trust is a way to shelter is against future potential care costs. This is a somewhat simplistic view, however. Local authorities carry out assessments to decide on the cost of care. They will ask questions about any house the individual needing care owned. When a house has been transferred into a trust, they have to decide if there has been a deprivation of assets. If they decide it has, they will make little or no contribution towards care costs. This then leaves the family either with the challenge of funding their elderly relation’s care or seek a judicial review. Either one of these options are expensive!
When planning for the future and with potential care costs in mind, it is sensible to consider a liferent trust.
What is a liferent trust and how does it work?
A liferent trust is a device that is included in a Will, usually by couples. You can decide how your house can be dealt with after your death when it is in joint names. You can create a liferent trust in your Will. This means your spouse or partner can continue living in the house even though they do not own the entire property.
The first stage in this process is to check the title to the property. If the title is in joint names, that is good. However, you need to check if there is a survivorship destination in the title. If there is, that would mean that the property would automatically transfer to the survivor when you died. Whilst this might seem ideal, it limits your flexibility in how to deal with your estate going forward.
What if there is a survivorship destination?
If there is a survivorship destination in your title, the first stage is to remove it. Solicitors call this evacuating the special destination. This then means you and your spouse or partner each own a one-half share in the house.
If the house is in your name alone or in the sole name of your spouse or partner, it needs to be changed into joint names.
You can then plan what should be done with your share in the house on your death.
You can create a liferent trust in favour of your spouse or partner when you make your Will. The liferent trust ensures your spouse or partner can continue to live in the house rent free even though they only own a half share in it.
In addition, it means the deceased’s interest in the property can be transferred to their heirs. However, they cannot sell the property until the surviving spouse or partner dies.
Why is having a liferent trust important?
Transferring your property into a discretionary trust might not be the most sensible thing to do when considering care fees. With a liferent trust, only one half of the value of the property is considered in the local authority assessment.
In addition, following the first death, the survivor can continue to live in the house. They will own their own half and have a liferent in the other half. It also means that the value in the survivor’s estate is limited for Inheritance Tax purposes.
Liferent trusts are useful where there are “blended” families with children from different relationships. A liferent trust enables couples to plan leaving property to children from different relationships.
Making a Will is one of the most positive, constructive things you can do. Always remember that creating a liferent trust in your Will is an effective way to shape your succession.
Contact us for help when making your Will or to discuss how you can create a liferent trust.