A common cause of concern for people is the cost of care should that be needed in later life. You may think that you will have to sell your home in order to pay for your care but this is not necessarily the case and there are some things that can be done to try to protect at least some of your estate for future generations.
Topics to be answered in this article
Exceptions to the Rule
Currently, care fees are means-tested and therefore if you need to go into care if you have assets over £23,250 you will be expected to pay for your own care. The total value of the assets includes your property but there are some exceptions to this which are mentioned below.
Those who have assets between £14,250 and £23,250 will be expected to pay a contribution towards their care from their income. Any shortfall is then met by the local authority in agreement with the care provider.
There are different fees that apply to Scotland and Wales.
What is a Life Interest Trust?
A life interest trust is a trust set up through your Will which can be used for people who either own a property solely or, more commonly, for a couple who own a property as tenants in common but who want to make sure that if they die first their partner/spouse/civil partner has a home for the rest of their life.
Following the first death if the survivor then needs to go into care the value of the property belonging to the first to die is protected and cannot be taken into account when assessing the survivor’s ability to pay for their care. On the survivor’s death the ring-fenced share will pass to the intended beneficiaries who may be future generations of your family.
When does a Life Interest Trust need to be made?
You can make a life interest Will at any age but it is wise to get it in place in good time and not to leave it until the last minute. The Trust element does not come into effect until the first death so if you did need to change your Will before then you are free to do so. Similarly, you are not tying up any assets so if you wish to sell items during your lifetime you are free to do so – the trust will only apply to those remaining trust assets.
What happens if I want to move home, or downsize?
Downsizing might be necessary if remaining in the family home becomes too much for the survivor. Alternatively, the survivor might decide to sell up completely or move into sheltered accommodation.
The life interest Will can be drafted to be flexible so that the survivor can move at any time. If they do so they will have full access to the whole value of the property but they will only ever be entitled to 50% of its value – with the remainder being held by the Trust.
If a smaller property is purchased any surplus funds will be divided equally between the survivor and the Trust. The latter will be invested by the Trustees and any income arising from that is payable to the survivor for the rest of their life.
How does a Will impact a Life Interest Trust?
With Life Interest Trusts it is not enough just to make a Will. You also need to consider the ownership position of any assets going into the Trust.
Many couples own their home as joint tenants in which case on the first death the house passes automatically to the survivor. However, if the survivor then needed to go into care the whole value of the property would be taken into account.
Only sole assets can be placed into a trust and this is why when a property is owned jointly by a couple they need to own it as “tenants in common”. This means that instead of the property passing directly to the survivor on first death, each person owns their own 50% share which can be directed through the Trust in their Will. We can deal with the change of ownership for you.