Paying for care 

Many solicitors have seen an increasing number of requests from clients who would like to give away their home to a family member to try and avoid the need to pay care home fees in the future and avoid paying inheritance tax.

When advising clients on this area of law, we have to highlight the issues associated with making gifts and here are seven important questions to ask yourself before considering moving forward with your gift.  

 
Will giving my home away mean I do not need to pay care home fees?
 
If you give away your property and the sole, or one of the main reasons, is to avoid care home fees, there are rules which the Local Authority must follow. The most important thing to understand is that the Local Authority may still take into account the value of the property should you require care home funding in the future. 
 
These rules are quite complex and technical, but one of the key points to note is that if the Local Authority deems that the sole or main aim of you making the gift is to intentionally deprive yourself of capital to avoid paying care costs, this could mean that the asset is still taken into account and funding could be refused.
 
What happens if I need residential care?
 
If the Local Authority decides that your intention was to create or increase your entitlement to means tested benefits, they could refuse to provide any financial assistance towards care home fees.  Although the Local Authority may still be obliged to provide care for you, this could result in a debt against you. This means that you could eventually face insolvency proceedings and be declared bankrupt. If this is the case, the trustee in bankruptcy could undo any gifts that you have made.
 
You should also keep in mind that the Local Authority may only apply a basic level of funding. This may mean that you cannot move into, or stay in the residential home of your choice and may need to live somewhere more affordable.
 
 
What happens if the person I give my property to dies first?

 
If you make an outright gift of your property and the person receiving the gift, perhaps your child, dies before you, their share of your property will pass either in accordance with their Will or under the intestacy rules. This could mean that a son-in-law or daughter-in-law or even a grandchild could own your home.
 
Although you may get on well with your in-laws, they in turn may remarry and then someone who is a stranger to you may own your property.
 
What happens if the person receiving the property gets into financial difficulty?
 
If you give your property away and the recipient of the gift gets into financial difficulty, the property will form part of that person’s assets. It could then be considered in any bankruptcy proceedings.
 
What happens if the person receiving the property divorces?
 
If sadly the marriage or civil partnership of the recipient of the gift breaks down, the property would form part of their assets.  This could then be considered in any divorce or dissolution proceedings. This means that all, or part of the property could be awarded to a spouse or civil partner, or it could mean that the property may need to be sold.
 
What happens if we have a disagreement?
 
Unless you have put into place an appropriate agreement, if you and your family member have a disagreement in the future, they could effectively evict you from your property. If you have given your property away as an outright gift, then it is normally irrevocable. This means that you cannot assume that your property would be returned to you.
 
Will I still need to pay inheritance tax on the property if I give it away?
 
If you give an asset away but continue to receive any benefit from it, then this may be classed as “gift with reservation of benefit” for inheritance tax purposes. This means that HMRC could deem that it still forms part of your estate for inheritance tax purposes, even though you have given the legal title away. If you decide to give away your property but wish to continue to reside in it, you would need to pay a full open market rent to the person receiving the property for your continued occupation. The rent would need to be regularly reviewed as it would be an arm’s length transaction.

When making important decisions like this about your future, it’s always best to speak with a legal professional, such as an SFE lawyer, who will be able to advise on your unique situation and help guide you through the process.
 

 

Sarah Cornish

Sarah is a Full Accredited member of Solicitors for the Elderly, a full member of the Society of Trust and Estate Practitioners (STEP), a Fellow of the Agricultural Law Association and a member of the Probate Section of the Law Society.  Sarah is also a STEP West of England Committee member.

Sarah has specialised in Private Client work since qualifying in 2007 and heads up Coodes Private Client team.  Sarah deals with the preparation of all Wills, Lasting Powers of Attorneys, tax planning during lifetime and after death and the creation, administration and termination of trusts.

Sarah’s client base includes a large number of agricultural clients. Her involvement begins at the stage of succession planning through the generations working with the family and their accountant or farm advisor through to the administration of estates. 

Coodes LLP is recognised as one of the leading law firms in Cornwall and Devon and the longest established firm in the region.

Coodes take pride in being rooted in the communities of the south west, serving the business and personal interests of clients from their extensive branch network of eight offices, ranging geographically from Penzance in the west to Holsworthy in the east.

Many of Coodes lawyers have roots in Devon and Cornwall and bring a particular understanding to every legal problem they face.

Coodes provide legal advice across the entire spectrum of business and personal needs, delivered by highly-experienced lawyers, organised according to the needs of  clients. Coodes are open, honest, direct and strive to explain things in plain English and keep legal jargon to a minimum.

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