Each month we put one of your questions to our experts. This month we ask Jocelyn Davis, an estate planning specialist, and Robin Harper, a Financial Planner from our Bournemouth office. Jocelyn is a Trust and Estate Practitioner (TEP), accredited by the Society of Trust and Estate Practitioners (STEP) and Robin is an Accredited Later Life Adviser.
Q. My husband and I hold our property as tenants in common. We also gave our two children £70,000 each in 2016. If one of us has to go into care, how is this assessed given the ownership type of our home and would the gifts also be taken into account?
Jocelyn Davis, Tilney’s estate planning specialist:
In the event that you need long-term care, your local authority will carry out a financial assessment to determine whether you need to contribute towards any services that you may need. If your capital (i.e. your savings and property) is worth more than £23,250, generally you will need to self-fund your care fees. In Scotland, the threshold is £27,250 and in Wales, it’s £24,000 if you receive care at home or £50,000 for care in a care home. To prevent people from giving their assets away in order to benefit from care fee funding assistance from the government, rules were introduced regarding the ‘deliberate deprivation’ of assets. Under the deliberate deprivation rules, your local authority can still take account of previous gifts made. There is no time limit on this.
As you have made significant gifts, the local authority may review these. However, if at the time the gifts were made there was no reasonable expectation of needing care, e.g. you were fit and healthy at the time or the gifts were made for another reason, perhaps as part of Inheritance Tax planning, the gifts aren’t likely to be taken into account. This is one of the reasons it is important to document any financial gifts you make.
From an Inheritance Tax perspective, the gifts you have made will effectively remain in your estate until seven years have passed from the date of giving the gift (in your case, in 2023). If you survive beyond that point then the gifts will be free from Inheritance Tax, saving £56,000 in tax (40% of £140,000).
If one of you moves into a care home but the other spouse continues to occupy your home, the value of the property won’t be taken into account when the local authority assesses the value of your capital assets. This also applies where your home continues to be occupied by a partner or a relative who is over age 60, incapacitated or is a child under 18.
It is important to note that since you own your property with your husband as tenants in common, you may not own the property equally. On death, you are free to dispose of your share of the property in your Will to whoever you wish or even to a trust, which allows you greater flexibility. The other way of holding property with another person is as joint tenants. If the property is held as joint tenants, on death your share would automatically pass to the other property owner.
Robin Harper, Tilney financial planner:
Firstly, with regards to the gifts to your children in 2016 — it would depend on your health at that time and also what the money was used for. Your local authority will assess whether or not they think the gifts were made as a means to avoid paying towards care home fees, so that the amount of capital would fall below the threshold for self-funding. For example, if you gave the money to your children to help them purchase their own properties and you and your husband were both in good health at the time, it might be fair to assume that your local authority would see this as legitimate. It’s really important that you make a note of these gifts somewhere and outline the details of them, including the full names of your children, the date the gifts were made, the amount and what they were for.
You could record this information in our Important Document log. This log can also be used to note details of your Will, any care plans and your savings and investments. By noting the location of all your important paperwork and policy information in one place, you could make life significantly simpler for your children – who I would assume will be the main beneficiaries from both you and your husband’s estates – if you or your husband become seriously ill or when you pass away.
Your tenancy in common is irrelevant in relation to assessing care costs and funding. If one of you goes into care but the other remains at the main residential address, the value of the property is not included for as long as the other person lives there. This is regardless of a joint tenancy or a tenancy in common. What would have an impact is if you both went into care or one of you died and the property was held in a Will trust. These are extremely complex but a financial planner would be able to help you and your family decide on the best course of action.
I would also like to emphasise that it’s extremely important to think about how you would self fund any potential long-term care costs sooner rather than later, as it’s often a lot more expensive than people initially think.
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The opinions given are based on our understanding of current legislation and prevailing tax rates and reliefs. These will depend upon individual circumstances and may be subject to change in the future. Advice in relation to trusts and inheritance tax planning is not regulated by the Financial Conduct Authority, however, the products used in relation to trusts and to mitigate tax may be regulated. This article does not constitute personal advice.