Putting a house in trust

[LezUlez]

Hi, this is my first thread so I apologise in advance if someone has posted about this elsewhere, I didn't see anything.

My DH and I are making our first will. We are both in our 60s. The solicitor is keen that we put the house in trust. He says that this will protect kids and help us avoid care home fees. I am bothered though, that the house wouldn't legally be ours anymore but belong to the trust. I feel that legislation could change the care home thing in future anyway so that the model is different.

Has anyone gone down this route and found pitfalls? Or is it something to be recommended? I know that if I'm the survivor I would certainly not remarry. I think it's unlikely for my DH as well but no one can be sure I guess.

Thanks for your comments, and btw I'm not saying that I am determined to dodge care home fees, but this has been suggested by the solicitor.

The law could change.

But I highly doubt it would be considered deprivation of assets if people do it as part of their will at my sort of age - late 50s. It would be easy to argue that it was done to protect the kids inheritance in the event of one spouse remarrying.

You are not avoiding paying your own fees from your half of your estate. You are ensuring your late spouses half doesn’t pay for your fees too. Agree legislation could change but many use life interest trust wills in second marriages to protect the survivor yet ensure their own children ultimately inherit on second death which is perfectly fair.

Edited as I misread the above post.

The advice from the solicitor was likely about putting your house in trust during your lifetime to avoid care fees and he’s quite right. That is clearly deprivation of assets and companies that do this for thousands of pounds I think are little more than scammers. No reputable solicitor would do that.

The planning between a couple in their wills is quite different to that.

Im confused about the difference

Surely both of these would result in avoiding all of your hone being used to pay care fees?

Whats the difference?

"...in avoiding all of your hone being used" [my emphasis]

No, in one case it is a move to put the entire house into a trust, in the other case you are simply splitting the house between the two of you so that you each own 50% each.

There are two very different things being talked about here.

In the first case, some people have been advised to put their home into a trust while they're still alive and carry on living there. There may perhaps be other reasons why this might be beneficial in a particular case but it won't be anything to do with care home fees.

Some local authorities may accept that the house has legitimately been put into a trust but they may equally decide that you have deliberately deprived yourself of assets and treat you as though you still owned the house. It seems to be pretty much a coin toss as to whether this will work.
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In contrast, the other thing that people are talking about is where you change the ownership of your home so that you own 50% each.

Most homes are owned by a couple as "joint tenants". This is where you both jointly own the whole house (just like a joint bank account). So, when one of you passes away the house automatically goes to the surviving spouse.

If you own the house as joint tenants then the house automatically passes to the surviving spouse regardless of what any will might say.

So, if your DH were to pass away first then you would get everything and it would be quite open to you to get involved with a younger gigolo and then leave everything to your young lover (or the local cat's home charity etc) when you eventually pass away so that your children get nothing.

I'm sure that you wouldn't do anything like that but you do read stories on MN about that happening.

Likewise, you could pass away first and then your DH remarries and leaves everything to his new wife. Again, plenty of stories on MN about this as well.
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The other way to own a home is as "tenants in common". In this situation you each own a separate 50% of the home and you can leave your own 50% to whoever you like. In this situation it is usual for each spouse to leave their 50% to their children (but you can leave it to whoever you like).

So, if your DH were to pass away first, then you could still give your 50% of the house to your gigolo but you couldn't give your DH's half of the house to him. Likewise if you were to pass away first then it would protect 50% of the house going to any new wife.

In the same way that 50% of the house is protected from any gigolo or fancy woman (or cat's home charity) like this it is also protected from being taken for care fees.

OK, so where does the trust come in?

This is largely to protect the surviving spouse from being turned out of the home.

There is nothing at all to stop you leaving your 50% directly to your children. Assuming that they're over the age of 18 then your share of the house passes directly to them in your will.

This means that they own 50% of the house and your surviving DH owns the other 50%.

They can then get a court order to force the sale of the house and turn your DH out. (or vice versa if you're the surviving spouse).

The trust stops this from happening. It says that the surviving spouse has the right to continue living in the house until his death (or other event mentioned in the will eg remarriage). This stops them being kicked out of the house by the children.

Exactly Another spot on.

Though some clients get confused and think they have sorted their planning by just being tenants in common. No. You need to be tenants in common AND have life interest trust wills.

lifetime interest trust created by the death / will
is completely different to an actual trust that takes the house and is basically in charge of the house as trustee
a trust like this can cost several thousand of pounds to create and the local council can well assume that your depriving yourself of your property in order to gain

a trust ( lifetime interest ) created by the death of a spouse and set out in a will
is perfectly legal and councils would find it hard to fight as otherwise they are telling you can’t leave your money to whoever you want

Re the tenants in common and life interest trust scenario, if there was quite a large gap between spouse A and spouse B dying would that mean capital gains tax is due on the inheritance from spouse A?

Any local authority would perceive this proposed action as deprivation of assets and wouldn't waive or pay care fees. Personally I wouldn't have any solicitor who suggested it. This also goes for private trust funds etc and also using parent money for alterations to property. CAB and or Age Concern are helpful in this.

It gets complicated, but the property is basically treated as though spouse B owned it during that period.

So, if it's the main residence of spouse B until they die then there will be no CGT. If there is also a holiday home or rental property as well then that will be subject to CGT.

If spouse B moves out before death (eg into a care home) and the house is rented out during that period then, again, the relevant CGT rules kick in.

Most of these trusts are set up to last until the death of spouse B. But sometimes they are written to end on a specific event; this may be something like remarriage/cohabitation, reaching a certain age or going into care etc.

If the trust does end before the death of spouse B then the value of the trust is treated as a potentially exempt transfer (PET) for IHT purposes and for CGT it will be treated as though spouse B had owned the property during that time and it will depend on whether they occupied the property.

Im imagining it will be similar in Scotland?

I tried to find out about this in Scotland but was bamboozled.

Really appreciate the advice here though, good thread @LezUlez

Yes, it's the same in Scotland but, as ever, some of the terms are different.

In England & Wales the surviving spouse is referred to as the "Life Tenant" but in Scotland the term is "Liferenter".

Also, what we have been referring to as a "Joint Tenancy" I believe is referred to as a "Survivorship Destination" and your deeds may say something like your property is owned "equally between them and to the survivor of them".

The equivalent of tenants in common will have the phrase "equally between them and to their respective executors and assignees"

You would need to talk to a local solicitor or other professional about how to change that.

Thank you for explaining this @Another2Cats

Thank you, that’s helpful. I’m just pondering what pitfalls there might be for tenants in common.

Only 10% of people end up in residential care, dwell on that stat.

Life interest trust wills disadvantages

1. law might change and planning not available
2. more expensive to put in place
3. second trustee involved on first death
4. more admin on first death
5. a pain if survivor wants to remortgage / equity release as mortgagee will want a clean title.

LIT wills are tax neutral. If survivor remarries or needs care you’ve at least potentially saved the first to dies half for the kids. Pros and cons. Not for everyone. But most clients want them.

They are good for second families.

@Another2Cats excellent post.

Putting your house in a trust is not deliberate deprivation of assets unless care is imminent. A family trust is an excellent way of protecting your house and prevents you having to pay care home fees so you can pass on your hard earned house to your children. It costs a lot of money but when you think you’re protecting sometimes many hundreds of thousands of pounds it’s certainly worth considering.

Sorry you are wrong. It doesn't matter. when you took the action, it is the outcome that's the evidence. The local authority will go through your financial situation and history and that of the relative. If you refuse to give the information you will be charged full cost.

If the council decide it was done specifically to protect the assets against care fees they can and will go after it. Even if it was before the seven year rule. There have been cases where councils have successfully got back money from 15 years prior.

and why not. Why do you think the taxpayer should be providing your family with an inheritance?

Do not assume I have a family trust- how rude! I dont have one so you are wrong. Yes the local authority will go through your finances- agreed. A good solicitor will advise you on how to avoid care home fees and that means divulging all of your financial transactions - usually over a 7 year period. Why are you so aggressive- it’s good to know there are alternatives out there- you’re having a pop at me and I’m just relating what my accountant told me. You’re making this a personal affront when I’m trying to help people make informed choices. It’s not about tax avoidance either … this is the law of our country.

I agree with everything you’ve said. The protection should be put in place well in advance of imminent care … as I said in my post.