Asset Protection
With the changes in Inheritance Tax to allow both partners to a marriage, or civil partnership, to keep their Nil-Rate allowance it may be thought that Wills should be straight-forward.
However, there are many instances where it is essential to carry out detailed Estate Planning to ensure you achieve exactly what you wish from your Will.
A prime example is the case of second marriages where there are children from the first marriage and you wish them to inherit part, or all, of your estate on the second death of your new marriage. If all of the estate is left to the survivor on the basis that they will ensure the children from the previous marriages benefit on the second death you run the serious risk of this not happening. Many people do not realise that marriage is one way to revoke a previous Will. So, if your partner remarries after your death and does not arrange a new Will, the new spouse would inherit part, if not all, of the estate!
The following information on Protecting Your Home and Protecting Your Family cover many aspects but these are only relevant if your main, or only, asset is the family home. If there are other assets, or the family home is only in one name, these options will not work
The action you take to avoid this will depend upon your particular circumstances and wishes. For further advice on what you should consider please feel free to contact us.
Protecting Your Home
It is a sad fact that many of us will know someone in some form of long term care.
It is also a fact that Local Authorities have a legal right to take possession of your home to fund the costs of this care. Approximately 100,000 family homes are being legally seized, each year, with a value totalling in excess of £5 billion. Most of this would have been family inheritance and could have been avoided with careful planning.
Local Authorities cannot take possession of a property occupied by the partner of the person requiring care. They do have a right to place a charge on the property for possession on the death of the partner.
If you are the survivor of a partnership and need care the Local Authority would automatically include the home as part of their assessment of your ability to fund the costs of the care.
With care fees any where between £400 and £1500 per week, depending upon the level of care and quality of the establishment, it does'nt take long for the full value of your home to be eroded.
Going in to a care home can be very expensive and if you have financial assets greater than £23,500 then you may not be entitled to any help towards the cost. When your local authority assesses you to see if paying for care is your responsibility, it will look at things such as:
- The value of your property
- The value of any private and State pensions
- The value of any savings and interest you earn from those savings
- Some benefits like Pension credit, attendance allowance or the care component of Disability Living Allowance.
Fortunately, there is a solution if you own your own home and plan before the first partner needs care, or dies.
It is illegal to deliberately transfer your property to someone else to avoid this asset being used to assess your capacity to fund long-term care.
However, you are completely within your rights to make provision, within your Will, to transfer your share in your property to a beneficiary, other than your partner.
To achieve this you need to transfer the ownership of your home into Tenants in Common (see section Property Ownership). In your Will you need to make provision to create a trust where your beneficiaries receive your share of the property on the death of your partner, with your partner retaining a life interest in the property.
This protects your share of the property from being included in any calculation made by the Local Authority to assess your partner's contribution to long term care, should this be necessary. You can also make provision for your partner to move to another property if they wish.
The section below Protecting Your Family shows other benefits from this type of trust.
Protecting Your Family
The Protective Property Trust described in the above section Protecting Your Home provides the facility for you to determine how you wish your share in the property to be distributed.
This creates two significant benefits for your family.
The first deals with the common occurrence of couples in a new relationship where each has children from a previous relationship. It is not unusual for each partner to wish to leave their share in the property to their own children.
If the family home is held as Tenants in Common as described in the section .Property Ownership. and the Protective Property Trust is included in each will, then each partner can leave their share to their own children while providing a life interest for the survivor.
The second benefit protects your share of the property, on your death, against a subsequent remarriage of your spouse.
In most cases the family property is held as Joint Tenants (the section .Property Ownership. explains these terms). It will automatically transfer to the spouse on death. If the survivor then remarries any existing Will becomes invalid. If they then die without making a new Will the laws of Intestacy will come into force with some of the assets transferring to the new spouse, which may not benefit your children.
This is particularly relevant if the new couple hold the property, or a subsequent property, as Joint Tenants, because the whole property will transfer to the new spouse. Your children could then be disinherited through no fault of yourself, or your partner.
By holding your family home as Tenants in Common you can place your half of the property into the Protective Property Trust, with the children as the beneficiaries, and a life interest for the survivor. This means your children will inherit your half of the property on the second death irrespective of whether the survivor remarries.