Parents giving house to me and sister - is this legal?

[Zorgothslugofdoom]

Just after a bit of advice really - although I will definitely be going to see a solicitor as things move forwards!

Me and my sister don't get on (whole different thread!). She lives close to my parents and does do a lot for them (takes them to doctors appointments, etc). I live 6 hours away and have a young family, so don't get to see them in person very often, but we talk at least once a week and have a good relationship (I think!).She is also in a bit of a mess money-wise. Our parents are both getting on, and will require some help in the near future. My parents have always said that the house, etc will be split 50:50 between me and my sister when they die.

Due to a number of reasons, my sister has persuaded my parents that it might be a good idea for them to give us the house now, and for her to move in and be there to help them if they need it. Her plan is that they will give the house to both of us, and she will then get a mortgage to buy me out of my 50%, so she can then have the house herself and invest in doing it up (it needs a lot of work). She plans to get 3 valuations from different estate agents so we get a good idea of the houses value. This will help her out of her financial problems and will help my parents as they will have someone there to help them if needed.

I don't have a problem with any of this - my parents can give their house to whoever they want, and they are being fair in splitting it 50:50. My question is, is this legal? I've read about inheritance tax, so know that one of my parents would need to survive for 7 years to avoid it, but don't know if there's anything else to worry about (I do know my grandmothers house had to be sold to pay nursing home fees, so don't know how this would work if they gave the house to us?).

As I said, I don't get on with my sister, and even though my parents said they wouldn't do anything unless everyone agreed, realistically she will get what she wants, so I might as well agree!

Would love someone to offer any advice they may have, before we see a solicitor.

Humble apologies, the law changed in 2014 re partners and other selected persons living in the property and indeed the home is not included in the means test for residential care homes and is disregarded. However if it cannot be disregarded there is the option of deferred payments whereby a charge can be put on the property and the property sold at a later late with the LA receiving the deferred payments at point of sale. This demonstrates how important it is to check the law and I shall retire humble, embarrassed, and very red of face.

Gifting any large property has an immediate risk of tax evasion.

Capital gains and stamp duty are considerations as well as IHT and asset deprivation....

Be very cautious indeed about entering i to a trust

Has the law changed in recent years? Must admit I thought it was a bit too good to be true that parents can set up a discretionary trust to avoid care home costs. However, it seemed to work for their neighbour. Local Council went mad when they were told they could not take house for care home costs. If legitimate how has government not worked it out and abolished such schemes?

The law hasn't really changed but all previous community care legislation (and there was a lot of it!) was alamagamated into one piece of law in The Care Act 2014.

What was supposed to happen as a result of The Care Act and 'The Dilnot enquiry' was a wholesale change to the way residential care was funded and charged for. However, the coalition government 'postponed' completely shelved the plans to bring in the new proposals and then Theresa May nearly lost a general election on the back of their 'dementia tax' plans which weren't that dissimilar. So the whole thing continues to remain in limbo.

Simultaneously the government austerity measures kicked in and broke local authorities have started chasing absolutely every penny they are legally entitled to, through the courts if necessary.

Providing the Local Authority can prove a house was put in trust to avoid care home fees they can essentially still charge as if the trust had never been created.

It basically comes down to timing and planning, and given most people don't actually enter into residential care it is potentially a big financial gamble to take for something that might never happen.

Sadly I've been in the position as a social worker to witness what happens when 'trusts' go wrong. I won't go into individual details but say in my experIence money can do funny things to family relationships.

The whole system needs an overhaul but what with brexit and the dementia tax fiasco I doubt there is much appetite in the current government to do anything about it any time soon.

To Hatgirl,

My parents set up the Trust many years ago whilst they were still working over 20 years ago. Both are in good health for their age. So guess would be difficult for Local Authority to argue Trust was for the sole purpose of avoiding potential care home costs.

That working people have paid Tax and National Insurance throughout their lives and bought a property from net income, but have to give up what they have earned to pay for care in old age in my view is very wrong. Particularly taking into account that those who have lived off the Taxpayer can receive the same care for free.

End of rant

Missed some firms are advising clients do this and spend £4K plus putting everything they own into a trust.. None of the reputable solicitors I work for promote this for ordinary clients, there are numerous downsides. Though they currently seem to work the thinking is that LA / the courts will clamp down and will seek to set them aside. Indeed one of the firms selling them are now selling insurance to cover your costs sunk if they don't work! There was even a Panorama on it last year.

To KERALA1,

So a Trust that was set up 20 years ago might be set aside in the future? Seems harsh. Can't blame people for living longer, but if all what people have earned over their lifetime can be confiscated what was the point of working?

There was a divorce case also where a trust of 20 years ago which both parents then agreed to in favour of their children was also set aside to ensure a fair split of assets between husband and wife. Trusts are not always a simple answer.

To Xenia

What case was that?

The tax and national insurance the average person pays during their working life probably doesn't cover what they receive back out again in terms of health care and education, let alone state pension and everything else that the 'state' pays for.

It's not a savings pot for future care, it's paying for the here and now.

Saying that 'people who live off the taxpayer can receive the same care for free' shows an immense naivety about how residential care is funded. No one actually gets residential care 'for free' (I'll come back to this) but what do you suggest as an alternative for people who can't afford to pay for residential care? The workhouse? Thrown out on the street? Left in their own homes until they fall, break a hip and die?

We are a civilised society so we pay the difference for those who can't afford it. You could alternatively ask why should the state have the burden of paying for people who can afford to pay their own way?

It's highly likely your parents have benefited hugely from rapid house price rises, so much of the value in their house is probably not actually 'hard earned' more 'fortunately received'.

I don't recognise your description of 'people who have lived off the tax payer' amongst my service users generally. Even those that don't have houses to sell to pay for care have generally worked, and often worked hard. If they haven't worked it's usually because of long term illness or disability, they have rarely been living the life of Riley from the state purse.

Even those that get 'free' care are contributing all of their pension and any other benefits they receive towards the cost of the care. They are left with £20 a week to pay for 'luxuries' like newspapers, new clothes, toiletries and haircuts.

I pity a society where people privileged enough to have hundreds of thousands of pounds at their disposal not only begrudge the poorest in society a basic standard of care but also try and hide their wealth in order to only receive a basic standard of care themselves.

Bonkers

It's highly likely your parents have benefited hugely from rapid house price rises, so much of the value in their house is probably not actually 'hard earned' more 'fortunately received'

The politics of envy creeping in here.

The politics of envy creeping in

Making a factual point is hardly demonstrating envy

Missed that's impossible to answer. It might be upheld, it might not. My point is its currently not good practice to sell clients at vast expense trusts which will "make everything alright" in relation to avoiding care home fees as there is frankly a risk they may be set aside and they could have other negative tax consequences.

Xenia yes judges don't like squirrelling away of marital assets.

Regarding the point that tax paid during a lifetime doesn’t cover what you take out re healthcare, etc. Are people forgetting indirect taxation. VAT is payable on most purchases, including petrol etc. Most people will have paid much more than just income tax. Stamp duty for example for one

@hatgirl I cannot fault any of the points you make. Spot on with all of them. A heady dose of realism for some I fear.

So what’s the conclusion? Are Trusts worthless nowadays? At time when parents set up their Trust I thought it was a bit odd, but the Law Firm used stated at the time it was legitimate. If law changes can it be applied retrospectively?

As an assessment officer, I would say that certainly in our local authority, the chances are if a trust was set up when the person had no need of care, it's unlikely we would be able to take it into account. However that's not to say it's a watertight guarantee as some authorities may take a much harder approach and there's nothing to say the rules won't change in the future. The guidance we use is available to the public, if you google Cass care act.

the divorce trust case I was thinking of (which is not a care home case) was Prest - see www.ft.com/content/b07d9124-d1e3-11e2-b17e-00144feab7de. I cannot remember if it was this one or another where the couple set up the children's trusts off shore decades before but it seemed pretty unfair that where both of them had wanted protection for the children the divorcing spouse could break the trusts later.

I have taken the view I will just make very uncomplicated payments to the children instead of trusts on the basis I would trust their spouses on divorce and I trust the children not to sell the house and spend the money on wine women and song. However I am not planning to give them my home.

(Also my parents died in their 70s and many other relatives 60s so I very very much doubt I will be one of these long livers needing loads of care)

In my case there is no family home . This was the second home brought on a buy to let basis . The mother put down the deposit and my EH pays the mortgage or actually interest only payments .She lives there rent free. There was no declaration of trust set up circa 15 years ago but now in the middle of a divorce a trust has been set up gifting her the house for the love and affection he feels for his mother . What about his children and the mother of his children = nothing

Trusts are useful for very large estates and if the children are unreliable / difficult if they are competent adults much more sensible and easy just to make outright gifts.

And many trusts are perfectly normal and nothing to do with tax evasion or trying to keep money away from a spouse. Eg if you die and your children are under 18 they will have the money on trust. If you have a savings account for the children that will be held on trust for them as they are under 81. Trusts are all around us and perfectly lawful but you need legal advice for anything complex.

I don't agree that giving a large property away is always tax evasion. Lots of parents with a lot of assets will give a lot of money perfectly lawfully to their children

wakeup, that does seem done in contemplation of divorce but it is possible there is no equity in it and if in London now it will be dropping in value so it may not even be an asset. On the other hand there may be masses of equity in it.

@ Xenia There is equity in it . The valuation is very low but that unfortunately is to his advantage due to the current market . The judge at 2 nd hearing mentioned equity and where the money from the former FH had gone ? EH says its been spent !

To AshTray Heart

Think I know where you are coming from. If an elderly person, or couple, placed their property in Trust when their health began to fail the Local Authority would have a good argument for the Trust to be set aside.

However, in current Housing Market many young people rely on help from parents to get on the Property Ladder. If that help is removed is there not a danger for Local Authorities in the future that when the current young generation becomes the older generation they have no assets? Government and Local Authorities would then have to provide care for free which may not be sustainable and result in even high taxes?