Common mistakes :: Is It Possible To Avoid Care Fees?
Can I sign my home over to my children?
By giving ownership of your home to your children they will need to be involved in all decision relating to it in the future. If you want to move, downsize or raise cash against it, your children will have to unanimously agree. While this may not be seen as a problem at the outset, as health deteriorates, differences of opinion often arise. This is particularly a problem where children disagree with each other on whether parents can still manage in the family home. We have known of cases where the children have sold the family home and bought a flat for their parents without consultation.
The rules around care fees are very complicated and many families have found that the Local Authority has either reversed the gift to their family or sent the bill for their parents care to the children. In some cases, family members have been prosecuted in the Courts for trying to hide assets or evade fees that are due.
By transferring ownership of your home to your children you will probably lose your exemption from Capital Gains Tax. That means that any increase in the property’s value will be subject to tax. If you decide to move in the future, your children could get a tax bill.
Alternatively, if they sell your property after your death they would be liable to tax on any increase in its value. They would have to pay this even if you did not need to go into care!
We have seen many instances where families have actually increased the liability on the estate by failing to take the right professional advice.
It is often said that none of us know what goes on behind closed doors. Signing your home over to your son or daughter who then experiences marriage problems could result in losing it in the divorce Courts.
We have seen many cases where people have lost assets because their children have divorced. In one case we know, the daughter-in-law specifically claimed her in-laws home as part of her divorce settlement!
The recent recession has seen many people find themselves in financial difficulty. Even some in ‘secure’ jobs have suddenly fallen on hard times.
If your son or daughter gets into financial difficulty or even bankruptcy, your home could be taken to cover their debts. We had a couple in the office in tears recently because their son had been forced to sell their home to pay off his debts.
Even if your children are financially stable, ownership of your home could mean that they do not qualify for state support if they become unemployed, as your home can be treated as an investment asset.
The same can be true if they are unable to work through ill heath. We have numerous clients who have a son or daughter that has been diagnosed with an illness – such as Multiple Sclerosis – that prevents them from working to support themselves.
None of us can predict the future. In the unfortunate event, that one of your children predeceases you, any share of your home in their name would pass under their Will (or Intestacy) to their heirs. This means that ownership and control of your property could pass to your son- or daughter-in-law or into trust for your grandchildren.
In addition to all of the above, transfer of your home offers no protection for your savings. All of these except for just £14,250, are still at risk of being taken.
Doesn’t my Will protect me?
If you are single, divorced or widowed, or your Will leaves everything to each other on first death, it offers you no protection at all. It will only come into force on your death, and any care fees incurred will have already been met by your estate prior to your death.
Regardless of what your Will says, it can only pass assets that you still own at the date of your death. If most of your assets have already been taken from you to pay for your care, it will only be the remainder – perhaps just £14,250 or less – that passes to your beneficiaries.Watch Video
Many couples have been sold Wills containing trusts on the basis that they will protect them from care fees. However, this does not offer the level of protection that most people require. Why not?
As stated above, your Will can only come into force after your death. This means that any savings that you have can still be taken from you to pay for your care. If one of you goes into care while the other is still living at home, your savings will be lost, but your home will be treated as a ‘disregarded asset’. This is true even if you have not made a Will.
However, if one of you dies and the survivor goes into care, all of the assets in that persons name are assessable by the Local Authority. This is often at least half the value of your house and all of your savings.
Worse still, if you both go into care, as is becoming more common with all of us living longer and medicine being able to keep us ‘ticking over’ for longer, your entire estate is then assessable. This means that fees for both of you will eat up the estate twice as fast and your family could be left with next to nothing. We have seen many cases where the net estate passing to children has been reduced to less than £5000 after funeral costs and probate fees have been paid.