For the vast majority of couples their home is their main asset. If this is true in your case, you will no doubt want to ensure that as much of your home as possible passes to your children. However, your home can be taken by others in the following ways:
- For care home fees
- On re-marriage (the new partner/spouse could end up with your house)
- By step children (your surviving spouse passes the asset to the new spouse who also has children, diluting the share that should go to your children)
- On bankruptcy (creditors trying to get their money back
Care home fees are a particular worry for many people. The current care fees regime means that should you need to go into care, the Local Authority where you live will assess your income and capital resources to determine whether you should contribute to the costs of your care. If your capital assets are more than (currently) £23,250 you will have to pay the full costs of your care.
The local authority may offer you a “deferred payment agreement”. This is when the local authority pay the costs of your care if you agree that these costs will be met in future on the sale of your home. Such an agreement is usually secured on your home by a land registry charge noted on the title deeds. Having a charge like this means that when you die the local authority may take all the value of your house to cover the deferred fees, leaving your children with nothing.
If you want to avoid your home being lost to care fees, you and your spouse/partner should create a Property Protection Trust in your Wills. Such Wills pass your individual shares of your home to a Property Protection Will Trust for your children but allow the survivor of you to live in the home for the rest of their life.
This is different to gifting your house to your children while you are living, which has many drawbacks. Firstly, such gifting may be interpreted as deliberate deprivation of assets to avoid care fees and this can have disastrous consequences. Secondly gifting your property away to children in your lifetime may be dangerous because you could become homeless should your children divorce, get into debt or become bankrupt. Thirdly there could b adverse tax consequences on your making such a gift.
A Property Protection Will Trust only becomes effective when the first of you dies. At that point, the deceased’s share of the home passes into the Will Trust. The effect of this is that if the surviving spouse/partner needs care at a future point, the local authority are only able to claim the survivor’s share of the house. The local authority cannot claim the share of the house in the Property Protection Will Trust.
Such trusts are very flexible as the surviving spouse/partner can move house if required. There can even be powers for the trustees to pay capital to the survivor if this is necessary, and of course, prudent. A Property Protection Will Trust is also beneficial for couples who have children from previous relationships as those children can be included as beneficiaries of the trust and hence their interests in the property are protected.