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Many people in the UK are concerned about whether their financial assets will pass on to their loved ones after they die. By planning ahead and taking steps sooner rather than later, you can enable the transfer of assets to run smoothly from one generation to the next and preserve family wealth.
A Trust is an arrangement in which an individual transfers assets to one or more people ("Trustees") who will hold it for the benefit of another person or group of people ("beneficiaries"). The most common form of Family Trust in England and Wales is called a Life Interest Trust.
The person transfers their property into a Life Interest Trust, giving themselves a right to live in the property for the rest of their life. They would be entitled to any income from the Trust but specified beneficiaries (for example, their children) would be the ultimate beneficiaries of the capital when they died. A Life Interest Trust therefore allows the person to retain some control and protects their occupation of the property.
When carrying out a financial assessment for care fees, a Local Authority should ignore and disregard certain assets, including the value of a right under a Life Interest Trust.
By creating a Trust in your lifetime, you may be saving your loved ones from having to go through the legal procedures of Probate when you die. However, this would depend on what other assets you had at the date of your death.
Creating a Trust does not form any protection from UK Inheritance Tax.
This is one simple way of ensuring that your property passes to family members or a loved one. Property can be transferred outright or into joint names. However, it is very important that the following risks are considered:
If you transfer assets, whether outright or into a Trust, with the intention of avoiding care fees, then you may be deemed as still owning the assets for the purposes of assessing your eligibility for Local Authority funding.
Most couples own property jointly as "joint tenants". This means that if one of you dies the property automatically passes to the other, regardless of what is in any Will. However, there is a way in which you can leave your respective share of the property under a Will to someone else, for example, to the children. In order for such a gift to take effect it is necessary to change the joint ownership by way of "Severance of Joint Tenancy" so that you become "tenants in common". You would then each have your own specified share of the property which you can leave to your children in your Will.
By severing the joint tenancy and making a Will, you are ensuring that your children receive a share of the family home on the first death. In addition, should the surviving partner have to go into full time residential care, the share given away should not be treated as Capital for the purposes of a Local Authority financial assessment as it is no longer theirs. The Local Authority cannot treat the family home as Capital whilst there is a surviving partner still living in the property. For more details see Long Term Care - Local Authority & NHS Funding.
Where a person needs residential or nursing home care in England or Wales, the Local Authority will carry out a financial assessment to calculate how much should be paid towards the care fees. There are strict rules regarding Deprivation of Assets where a person's objective is to obtain assistance with care fees. Therefore if someone disposes of assets with an intention to obtain help with care fees then the person making the gift can be assessed as if they still own the asset.
It is therefore extremely important that legal advice is obtained before any steps are taken to transfer property, whether as an outright gift or as a Trust. If the Local Authority believes you have given your assets away to avoid the payment of care fees, they may decide that you have deprived yourself of assets and calculate your ability to pay as if you still owned them. In some circumstances, where the asset has been gifted within 6 months prior to the person going into care, the Local Authority could recover the cost from the person who has received the gift.
Generally, it is the motive and intention behind making the gift that is the important factor. There is no time period after which it can be said that the gift is likely to be successful. If the gift took place at a time when a person is fit and healthy and could not have foreseen the need for a move to nursing or residential care, then it is more likely that the gift will be successful. However, there are no guarantees.