Wills leaving everything to your spouse do nothing to protect your assets from Care Home fees. Proper planning can ensure that your hard-earned capital passes to your children, not the government.
How many people would make it their goal in life to work hard, buy a house, pay off their mortgage and then in later years move into a retirement home and have to sell their house to pay for care home fees? Very few! However, last year, 45,000 people had to sell their homes in order to pay for their care. Fees can be a staggering £40,000 to £50,000 per year, so it is easy to see how the value of a house can be quickly eroded. Only when a person’s assets reduce to £23,250 does the Local Authority start contributing to care home fees.
Careful planning can ensure that instead, it IS possible to work hard, pay off your mortgage and then pass on your hard earned assets to your children.
This potential problem affects every single individual in the country – with estimates that one in four people will live until 100, it is a growing problem which individuals can tackle by planning early. Whilst the prospect of making a Will may seem morbid or boring, a Will can make a huge difference and can do so much more than it says on the tin!
Most couples own their houses in such a way that when one person dies, the property passes automatically to the survivor. If the survivor then needs to move into residential care, the Local Authority makes a financial assessment, which will include all assets, including the entire property. Although the Local Authority will start contributing to fees once that individual’s capital reduces to £23,250, the individual continues to pay towards their fees until their capital reduces to just £14,250. By that time, nearly the whole value of the house and any other assets are gone.
The answer is not simply to give the house away to avoid care home fees. Local Authorities have a wide reaching ability to ignore any gift made with the intention of putting assets beyond their reach.
The solution is a two stage process. The first is a slight change in the way in which the house is owned. Instead of it being owned as described above, ownership is changed so that each person owns a distinct share (termed “tenants in common”). However, on its own, simply being Tenants in Common is not enough. If the couple then make Wills just leaving everything to each other, when the first person dies they will be back in exactly the same position as they would have been before.
Instead, Wills need to be made in which the couple leave their respective shares of the house to each other just for life. Although at first sight, it is hard to see how there could be much of a difference in owning a property just for life as opposed to owning it outright, the legal difference is crucial and means that instead, if the survivor needs to move into a care home, the half share of the house which they do not own outright cannot be taken into the Local Authority’s financial assessment. Additionally, there is the possibility of arguing that their own half share of the property should be valued at zero since no-one would be prepared to buy just half a house.
Both elements of this planning structure are vital. Once both are carried out, it means that you have the reassurance of knowing that you will not have worked all your life simply to see your hard earned assets disappear, but have instead planned as best as you possibly can for your family.