should I give my house to my children?
This is a question frequently asked by couples who are worried
that if one of them dies, and the survivor of them needs to go into
care, they would have to sell their house to pay for care home
fees.
Transferring your house to your children may
seem an attractive option, but is it really? If you are doing so to
avoid care home fees then it will be caught by the deprivation of
asset provisions. If the local authority can prove that a
significant motive of you giving away your house was to obtain
financial assistance with your care home fees sooner than would
otherwise be the case, then they can disregard the transaction and
assess you as if you still owned your home when they carrying out a
financial assessment. In the current climate when local
authorities are having their budgets slashed, they are becoming
increasingly vigilant at investigating such transactions. They
would investigate the timing of the transaction and your motives
for doing so. It is a misconception to think that they can
only look back a few years; there is in fact no time limit on how
far back they can investigate.
Caution also needs to be advised because, once
you have given away your home, the property is your children's, not
yours. You will therefore have lost control of it. In the event of
a family rift, your children could decide to sell your home leaving
you out in the cold.
If a child of yours died before you, then
their interest in the property would pass under their Will. If they
have not made a Will, the intestacy rules will apply. Your
ability to live in the property would therefore not be at the mercy
of your children but the beneficiaries of their estate.
If a child became bankrupt then the house may
have to be sold to pay creditors. If a child divorced then
the danger is that the property could be taken into account in the
matrimonial settlement.
You may feel that these issues will not happen
in your family, but sadly no family is immune.
If you gave away your house but continued to
live there then, for inheritance tax purposes, it would be caught
by the gift with reservation of benefit rules and would be deemed
to be back in your estate at the value of the date of the gift or
the date of your death, whichever is the higher of the
two.
Whilst the property is yours then any increase
in value from the date you bought it to the date you sell it would
be exempt from capital gains tax because it is your main residence.
If, however, you gave your house to your children and they had
their own homes, then if the property increases in value between
the date of the gift to your children and a later sale then that
gain would not benefit from the main residence relief exemption and
could be subject to capital gains tax.
Even if you decide to dismiss the above
concerns and succeed in asking the local authority to pay for your
care, then you need to be aware that you will have less choice over
which home you go into. The care home the local authority
chooses may not be to your liking. If you were able to pay
yourself, from the sale of your own home, then you could choose a
care home of your choice to see out the rest of your days.
A common way to avoid the above pitfalls,
rather than giving your home to your children during your lifetime,
is to deal with it on your death. You can make a Will that is
structured to help protect against nursing home fees, the aim of
which would be to ring fence within a trust the value of the
interest in the property (and if appropriate other assets) of the
first to die. The purpose of this is to ensure that these
assets do not pass outright to your surviving spouse. Your
spouse would still own her/his half of the house and this will be
taken into account in a care home fees assessment, when she/he goes
into care, however, your half will be protected for your
children.
If you are considering taking action to
protect your family home against care home fees, then specific
legal advice must be taken.
For further information, please contact Alison
Craggs, solicitor in Blake Lapthorn's Succession and Tax team and a member of the
Society of Trust and Estate Practitioners and Solicitors for the
Elderly based in Oxford. She can be
reached at alison.craggs@Bllaw.co.uk
or on 01865 254 209.
Alternatively, contact the head of team in the
office nearest you:
Rachel
Brooks, partner and head of Private Client
Services group in our Portsmouth office, on 023 9228
2714 or at rachel.brooks@bllaw.co.uk.
James Antoniou,
partner in our Oxford office, on 01865 254286
or at james.antoniou@bllaw.co.uk.
Fiona Fox,
solicitor in our Southampton and Portsmouth offices, on 023 8085
7282 / 023 9228 2748 or at fiona.fox@bllaw.co.uk.
Douglas
Smith, partner in our London
office, on 020 7814 5438 or at douglas.smith@bllaw.co.uk.
Alternatively, email our general enquiries helpdesk
on privateclientinfo@bllaw.co.uk.
