- May 18, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Situation with Parents’ Estate Planning
My parents have brought up the idea of putting their house in a will trust instead of opting for a traditional will. Despite the fact that the house falls below the inheritance tax threshold, their primary concern is avoiding care home fees, stating, “They can take the whole house if one of us goes into care.”
However, my parents have limited knowledge when it comes to financial matters and tend to make poor decisions based on misinformation. They are unwilling to seek advice from a professional advisor or verify the accuracy of their beliefs. Consequently, much of what they say is unreliable and misleading.
In light of this, I am apprehensive about the potential consequences of their decision. A quick search on the internet suggests that setting up a trust could result in additional fees or taxes over time, raising concerns about the financial implications in the long run.
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It’s not uncommon to do this, severing the tenancy on the property and having each share go to a trust rather than the surviving spouse.
It provides a bit more certainty that your assets will go to your intended beneficiaries, e.g. at least half the house proceeds won’t be sold to pay for care fees, it won’t potentially be lost if the surviving spouse remarries, etc.
This can be quite a complicated area so you really do need to speak to a proper adviser.
Generally speaking, it’s quite common to use will trusts to help protect against care fees. First of all you make sure the property is held as tenants-in-common. This means your parents’ shares in the property pass through the will rather than by survivorship.
Then, the wills are amended so that the share of the property goes into trust for the survivor of your parents. If one of your parents dies, the survivor stills own their half of the property but the trust owns the other half. The survivor can still live in the property, rent free, to the exclusion of anyone else, as that’s what the trust says. If the survivor needs to go into care then only their half of the property can be used to pay for care fees. The half that is in the trust is protected.
Wills only come into effect after someone has died, so this type of planning doesn’t really help if both of your parents end up going into care. Having said that, my understanding (it’s been a little while since I looked at this point) is that if both of your parents are alive and only one of them goes into care then the local authority can’t take the value of the house into account when assessing care fees anyway – the property is subject to a “mandatory disregard” if the spouse or an elderly relative is living in it.
On the point about costs and taxes – if the will trusts are set up properly then this shouldn’t be too much of an issue. The type of trust used (a life interest trust) is essentially transparent for tax purposes. If the trust is limited to a share in the property then there is minimal administration required and should be little in the way of costs unless your parents have appointed professional trustees – which would likely be unnecessary as long as there are reasonably competent family members around who could take on the role.
What your parents should avoid is putting the property into a lifetime trust, however. That’s a lot more complex and carries possible tax implications.
Make their ownership ‘tenants in common’ instead of ‘joint tenants’. The number of advisers I see overcomplicating things with trust is mainly to justify a fee. The above will solve the problem you mentioned in your quote.
Source: I’m an adviser
Hi /u/Primary-Signal-3692, based on your post the following pages from our wiki may be relevant:
* https://ukpersonal.finance/gifts-and-inheritance-tax/
* https://ukpersonal.finance/lump-sum/
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Op post on the UK legal sub too. It’s hardly something they can set up on their own.