With our aging population increasing, a regular concern for clients is the possibility of having to move into a care setting and the financial stress that comes with working out how this care will be funded.
Understandably, clients worry that they may be forced to sell their family home and exhaust all savings in order to meet the costs of care, leaving nothing for the next generation.
As a result, clients often ask us whether they should be giving away their family home to their children/grandchildren during their lifetime. The idea being that the property will not then be available to meet the costs of any future care.
In these circumstances, it is assumed that those children/grandchildren will happily allow their parents/grandparents to continue living in the property for their lifetime, as if it was still owned by them.
On the face of it, this seems the ideal situation, however, we would normally advice against this.
There are several reasons why this is not advisable, summarised (not an exhaustive list) briefly as follows:-
- You will effectively have given up any authority to deal with the property. You would not be able to move, downsize or even extend the property without authority from your children/grandchildren;
- There are rules against disposing of assets ‘deliberately’ to avoid meeting the costs of care. When Local Authorities carry out financial assessments at the point a person moves into care, not only will they consider current assets, but they will also consider notional capital (that is previously owned assets).
If the Local Authority considers the disposal of your property as ‘deliberate’, they can assess you as still owning that property, even though you do not. This means they can potentially claim costs from the person to whom the property has been transferred.
- For most people, their home is their main asset. You may find that you need to raise capital in the future to support your retirement or, you may later decide to would like to pay for a better standard of care. If you no longer own your property, you do not have that asset from which to raise any additional capital;
- There is a risk that your children/grandchildren may become bankrupt. In such circumstances, the property would be an asset owned by them and as such, may become available to creditors to meet any debts;
- If your children/grandchildren are married but later divorce, the property would again, be an asset owned by them and as such, may be considered under the terms of any financial settlement;
- Depending on the size and value of your estate, there may be unexpected Inheritance Tax implications as the gift of the property would be considered a ‘gift with reservation of benefit’ and does not fall outside of the value of your estate after 7 years, as other gifts do.
If you are worried about meeting the costs of care, it is important to seek good legal and financial advice. Your Solicitor can discuss with you the benefits of putting in place a Lasting Power of Attorney for Health & Welfare, which can become an invaluable document should you ever have to move into care.
They can also review your Wills to see if anything can be done to better protect your assets for the future.
For more information on the article above please contact Dayna Bellis.