Plan Ahead and Safeguard your Home.
Ruth West had reached the age of 90 and, sadly was suffering from dementia. It had reached the point where she needed full-time care and had to go into a home.
Ruth's Story Her husband Tom had died some years earlier and, at this point, her only real remaining asset was her house which was worth £145,000. She was the sole owner and, because of the rules, she had to sell that house to pay for her care fees. She had an income of £19,000 from her pension, but the care fees amounted to £51,000 a year, so she had to find another £32,000 each year to cover the difference. This meant she was forced to sell the house and draw £32,000 every year from the proceeds, all the time steadily reducing the inheritance of her three children, until all that was left in her estate was the £23,250 (savings threshold allowed before receiving help to pay care fees).
At Reeves, we only got to hear about Ruth through one of her children, but, by then, it was too late to help. This was unfortunate, because a little planning which might have cost between £1,000 and £2,000, could have protected the £145,000 inheritance.
The Solution
What we have done for other clients - while the husband and wife are both still alive - is advise both to draw up wills and alter the terms of their home ownership. There are two ways of owning your house. One is to own it jointly, which is what most people do and is the default method of ownership. The other way is to own it as tenants-in-common, so that each partner owns 50%. Each can then direct where they want their half to go after their deaths. In the Wests’ case Tom could have left his 50%, not to his wife but to a trust for their children, which would have kept it out of his wife’s estate.
Then, when Ruth had to go into care, the local authority would not have been able to sell half a house to pay the care fees and so would have had to assess her half of the house as having a value of zero. Nor can the local authority force equity release because equity release has to be agreed by all the parties owning the house.
While the planning was put in place not specifically for this reason, this was an extremely beneficial by-product. We have never had such a case go to court but we know that in a number of other local authority areas these arrangements have held up.
However, it’s important that such planning is put in place in good time and before it’s needed. If it’s done when you reach the stage where you need care, or are likely to need care, the authorities could regards such an arrangement as a deliberate deprivation and enforce payment.
Acting in good time and taking appropriate professional advice can protect your most valuable asset for your children
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The articles are for information only and should not be construed as advice or a recommendation. The investment strategies mentioned are examples only and may not be suitable for your particular: circumstances, tax position or objectives. Please seek independent financial advice before taking any action.
Names have been changed to protect identity.
No advice should be conferred from the articles. No action should be taken without independent professional financial advice as any actions on your pension may be irrevocable and have a big impact on your income in retirement.
