Estate planning is the process by which an individual or family arranges the transfer of assets in anticipation of death. It’s an area in which Leap Finance specialises and can offer trusted financial advice. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death. Without careful Estate planning, it’s much harder for people to sort out their affairs after death, making the process very stressful, costly and time consuming. Sadly, many of us work a life time to pay off our mortgage only to find that our assets are taken from us to pay for our care.
How Do I Protect My Home And Assets From Care Costs?
Most of us work very hard over the years to buy our own homes and build up our savings for our retirement and would like to leave a ‘little something’ for our children and grandchildren after we are gone. Unfortunately, the costs involved in moving into a nursing or care home can literally wipe out your entire savings and your home may have to be sold to pay for care fees. This could mean that your loved ones could receive very little, or even nothing at all of what you originally intended them to have. When someone enters care they are automatically ‘means tested’ and ALL of your assets, including your home are taken into account. Only those who have very few assets will escape the costs of care.
So what can be done?
Firstly, it is important to safeguard your home and the first step is to look at the way you currently own your home. The majority of people own their homes as ‘Joint Tenancy’ which means that on first death, the survivor would then own 100% of the full property value and this is when your home becomes vulnerable to attack from costs of care. By simply changing the way you own your home to what is known as ‘Tenants In Common’, combined with the appropriate Trust planning, it will effectively ensure that your property is better protected from care home costs should either of you require full time care.
So what about my other assets – my bank accounts and savings?
Once again, by changing the way your assets are invested and held, you can ensure that your cash or liquid assets are also protected from care costs At Leap Finance our team can advise on all aspects of care planning and provide you with the correct strategy to ensure that your assets are fully protected.
Losing Your Home to Care.
If you own your own home then its value will usually be counted as capital. There are some important exceptions to this rule. Your property will be disregarded for the first 12 weeks after you enter care permanently. If your husband, wife, unmarried partner or civil partner lives in your home then its value will not be counted as capital. If a relative aged 60 or over lives in your home, its value will be ignored. If a relative under the age of 60 who is incapacitated (i.e. receiving Incapacity benefit or disability Living allowance) lives there, then again the value will be discounted. If your home is occupied by your estranged or divorced partner and he or she is a lone parent with a dependent child, its value will be ignored. The value of your property should be ignored if you are liable to maintain a child under the age of 16 and your house is the child’s main home.
You are most at risk of losing your home to care costs when you enter care after owning your home jointly with a spouse, unmarried partner, or civil partner and they have passed away. The full capital value of your home will have passed to you and you will be assessed on the property’s full value along with any formerly joint held assets, such as savings. Whilst the council cannot force you to sell your home, if you are unable to cover your care home fees the money you owe your local council will mount up. However, the local council can allow you to defer part of your contribution if you are unable or unwilling to sell your home and you do not have enough income or other assets to cover your full fees. This will be seen as an interest free loan or a deferred payments agreement and will be paid back when your property is eventually sold, or when your estate is wound up. Deferred payments agreements could involve a legal charge being placed on your property. The amount of money you owe will then start to incur interest 56 days after your death, or the date you terminate the deferred payments agreement. You may also have to cover any legal costs involved in placing such a charge. These costs will have to be paid up front and will not be added to your deferred payments.
How Can I Prevent My Home Being Sold?
Most people work hard throughout their lives and want whatever assets they have are built up to be passed down to their children and grandchildren, so losing their property to care costs is a severe blow.
The simplest way to avoid this happening is to firstly change the way in which your property is owned. Most people when buying a property with another person have the property set up as Joint Tenancy and whilst this may be the correct way to own a property in certain circumstances, for the vast majority of people this is not the best way to own a property for care cost issues.
Severing the tenancy on the property and changing the ownership to Tenants In Common, so you now each own 50% of the property (percentages of ownership can vary according to individual requirements) and then by setting up mirror Wills, each bequeathing the Testator’s share of the property to either a Property Trust or Family Trust, can ensure that your home is not lost to care costs.
When you pass away your property is left to the Trust, whose beneficiaries will be the spouse or partner, children, grandchildren or other named beneficiaries. Whilst the surviving partner continues to reside in the property there are no issues but once the survivor goes into care this is when property and assets will be assessed for care costs.
The council would designate a value to the survivor’s interest in the property. The value would be dependent on the price that could be obtained from a willing buyer. As before, it is highly unlikely that an outsider would be willing to purchase a property when part of it could be legally occupied by any of the beneficiaries named in the deceased person’s Trust (usually his or her children/ grandchildren) and so, the value of the person’s share entering care would be held as being nil.
Protect My Children’s Inheritance?
Protecting your children’s inheritance is more commonly known as ‘Bloodline Planning’, effectively ensuring that your assets reach your children, grandchildren and other relatives, rather than ending up in the wrong hands!
When assets are distributed to beneficiaries “=’absolutely’, (i.e. they receive cash, property or other assets as a direct lump sum payment, they are then considered to be part of the beneficiary’s estate and would be at risk of attack from any future divorce settlements, creditors and taxation.
We can ensure that your children and grandchildren are able to benefit completely from the inheritance you want them to receive and at the same time, protect the family home and other assets from being lost to the costs of long term care when you get older. Have you considered what might happen if your surviving spouse were to remarry?
How would this affect your own children if he/she later changed their will in favour of the new spouse and any subsequent step children? Or for those of you who already have children from a previous marriage, how do you ensure that they would get their fair share? What if your children are very young or have special needs? How can you ensure that they are fully provided for?
There may also be a business you have worked hard to build up. Surely you would want to protect this for your family too? Do you really want to leave what happens in all of these circumstances to chance, when with the professional help of Leap Finance, you can set up the correct type of planning to protect yourself against all these potential problems