The Problem
Anyone may need to go into long term care at some point on the future and if so he or she may need to fund the costs of their own care. Inheritance Tax is bad enough but the cost of entering into long term residential care in old age can be even worse, with some people paying 100% of everything they own, over and above a lower capital limit of £12,500 to cover the cost of their care home fees.
If someone deliberately deprives him or herself of assets so as to reduce the amount they have to pay for care, then he or she may be treated as if they still own that "notional capital" and it can be included in a means-test.
Examples of deliberate deprivation vary but will include the payment of a lump sum to another person or the transfer of the family home to the next generation.
A Solution
Most couples own a property as joint tenants, meaning that if one of them should dies then the survivor inherits the entire property. There is another option. Each of the owners could own the property as a "tenant in common" meaning that each owns a half share in the house. This way they can each have a say on who should inherit their share of the house on first death. A Trust is set up so that each partner can leave their share of the property to the children but giving the surviving partner rights of occupation. This means the surviving partner is legally entitled to live in the house for as long as he or she wishes. Certain conditions can be included here, such as a requirement that the survivor not remarry or live with another partner. However, the share which is held in Trust cannot be claimed by the Local Authority to pay for residential care for the survivor.
The same arrangement can be used to protect property owned by one spouse. Similarly, a protective will trust can be useful for couples of second marriages who wish to protect not only their childrens’ inheritance but who also want to provide some security and a home for their partner.
