It is not surprising that few of us have considered what the effect might be on our savings and investments, or even our home, if we ever needed residential care later in life.
Most people assume that we will pass on our assets to our children or other relatives in due course, yet this may not always be the case unless careful arrangements have been made to protect our assets from being taken to pay care home fees.
Thanks to advances in medical science and a general improvement in health and fitness, everybody is living longer.
Even with this in mind, it is highly probable that one or even both partners in a household will require long-term residential care at some point in their lives. This is particularly so given that it is becoming much less common for elderly parents to move in with their children these days.
THE CURRENT SITUATION In recent years, it has become increasingly apparent that the State will only provide for those with little or no savings or assets. Everyone else will be expected to pay at least part, if not all, of his or her own costs.
Currently, anyone with assets in excess of 22,500 (this includes the family home) would not be eligible for any state help with their residential care fees. If you have more than 12,000 but less than 22,500 you would only be entitled to partial assistance.
The net result is that anyone who owns their own home is unlikely to receive any assistance even though they do not have large amounts of cash assets.
Even if you don’t have the cash readily available, the Department of Social Security can still place a charge against the family home, which allows them to recover the moneys owing when the property is eventually sold.
Average residential care fees start in the region of 500 per week so it is clear how quickly assets can be eroded. The DSS has often become the sole outright owner of the family home after the death of an elderly parent who had been living in a nursing home. But there is a solution.
THE PROPERTY TRUST A ‘Property Trust’ is based around three basic elements: the basis on which you own your property, the Trust terms, and your Wills, which contain the Trust instrument.
The Property trust can only be created whilst both partners remain alive and the property must be owned as Tenants in Common .The Trust instrument is then included in both Wills but does not come into force until after the death of the first.
Upon the first death their share of the property, typically 50%, is placed into the Trust to be administered by the Trustees nominated in the Will, and this usually includes the surviving spouse. The Will also specifies who is to be the ultimate beneficiary of this share in the property and the Trustees duty is to protect the property for the benefit of the beneficiaries.
The surviving spouse, under the terms of the Trust, has the right to remain living in the property for the rest of their life. On the death of the second spouse the trust comes to an end and the property passes absolutely to the beneficiary This means that the survivor never becomes sole owner of the property which prevents the Local Authority including the whole value of the property when totalling assets if the survivor needs permanent residential care. So the most that could be claimed against is the survivor’s half of the property.
Does half a property have a value? In 1993 the High Court ruled that because half a home cannot be sold or rented by itself, there was no value to it and a market valuation today may well follow this ruling. In which case, the value of the asset would be zero and the total value of the property protected.
Why a Protected Property Trust? As well as protecting the home, the Protected Property Trust safeguards the interests of the surviving joint owner, ensuring that the survivor has the right to live in the property without payment of rent for their lifetime. The Protected Property Trust is flexible and will allow the survivor to move home, buy, sell, upgrade and downgrade.
Only after the survivor dies does the first share of the property pass to the children or other beneficiaries. The survivor cannot be forced to sell or move without consenting. The Protected Property Trust can also protect the residential rights of a current partner if the property share is to be left to children from a previous relationship or other beneficiaries OTHER IMPORTANT FEATURES The surviving partner does not own the deceased’s share of the property. If that person then goes into residential care then only his/her share in the house can be included as part of the assessment of their contribution to care costs.
The surviving partner is given a ‘Life Interest’ in the deceased’s share of the property, so they are entitled to live in that property for the remainder of their life and the property cannot be sold without their permission.
If the surviving partner chooses to sell and move to another property the proceeds from the sale can be used to purchase the second property and the terms of the trust remain over the second property.
If there is any excess capital following a sale then the money is invested and the surviving partner can take the interest that is generated as an income.
The deceased’s share in the property is fully protected for the beneficiaries, so even if the surviving partner remarries, the children’s inheritance is protected