Planning Ahead

Capital Limits Introduction Why plan ahead? Potential threats to your Estate Bloodline Planning Protect your home from being sold to pay for care Generational IHT Planning ahead for incapacity

Capital Limits Why Plan Ahead? 1 in 4 people are likely to require care in later life In the past 5 years 100,000 homes have been sold to fund care fees 750,000 people in the UK have dementia An estimated £1.3bn a year is paid by people who do not take action to mitigate against IHT

Potential Threats to your Estate Capital Limits Potential Threats to your Estate Costs of care Remarriage Divorce Creditors Inheritance Tax

Joint Ownership Bloodline Planning

Bloodline Planning Bloodline Planning Son and daughter inherit £500,000 equally from Mum through her Will or in her lifetime by gifting Daughter Son £250k £250k Hand out tech sheet 1

Bloodline Planning Daughter divorces and the son’s business goes bankrupt Of the original £500,000 inheritance, only £125,000 is left Daughter Son £125k ? £125K is “lost” to the “outlaw”! Anything left??? Daughter divorces. “Husband” makes claim on daughters estate, which includes her inheritance from Mum. Son’s business then goes bankrupt. Creditors make claim on him for the debts

Bloodline Planning Bloodline Planning Mums Trusts If Mum had used Trusts Son and daughter are beneficiaries of Mums Trusts (plus the grandchildren). Trust Funds cannot be claimed against by beneficiaries spouses or creditors.

Protecting The home from being sold to fund care fees Joint Ownership Protecting The home from being sold to fund care fees

Capital Limits and care home fees Capital Limits are used to asses a persons ability to pay for Care. Lower limit £14,250 Local Authority pays for all Care. Upper Limit £23,250 person pays for their own Care. Between these limits fees part paid by Local Authority and part by client

Care Planning Long term care Fees With the average care home costing between £800 and £1000/week it doesn’t take long to lose your entire life’s savings. And remember your family home can be assessed for care and you may be forced to sell that too.

Care Planning-The Family Home When can the value of your house NOT be assessed for care? Care Planning-The Family Home Surviving spouse or partner still living in house Relative over the age of 60 still living in property Incapacitated relative still living in the property A child under 16 for which you are liable to maintain Age Concern Fact Sheet 38 page 3

How can you protect your assets from care fees? Care Planning How can you protect your assets from care fees? To prevent your families inheritance being wiped out to pay for care you must reduce the valuation of your assets below the £14,250 limit at the time of entering Care. How do we achieve this?

Joint Ownership Joint Ownership Mr Mrs For most people their main asset is their family home This is how most people own their own property

What happens if one person dies? Joint Ownership What happens if one person dies? Mr Mrs Becomes Sole owner Mr Dies

Mrs now requires long term care Joint Ownership Mrs now requires long term care Mrs Is taken into long term care Her sole assets and income are assessed. This includes the Family Home. Home sold to pay for care?

What’s the solution??? ?

Mr & Mrs “own” 50% of the home each Sever The Tenancy Sever the Tenancy Mr Mrs Mr & Mrs “own” 50% of the home each SEVER THE TENANCY

Sever The Tenancy Mr Mrs Their share goes into a family trust Mr dies. His will directs his share of the house into his Family Trust. Wife and bloodline are beneficiaries of late husbands Trust Trust Funds are protected from care costs, divorce etc

What happens NOW if Mrs needs Long term care Sever The Tenancy What happens NOW if Mrs needs Long term care Mrs - Mrs now requires care. - Her assets are assessed including the home - She only has interest in 50% of the home - In these circumstances the value of the interest, even to a willing buyer, could be very low or could effectively be nil. - CRAG suggests the value of a joint interest in property will be heavily influenced by whether the joint owner or another interested party is willing to buy the residents share.

Care Planning-The Family Home If the couple Sever the Tenancy of the family home what is the value of the survivors half after 1st death? Nil! Age Concern Fact Sheet 38 page 11

Part Share Valuation of Property What does the Government say about this? The Government’s Department of Health’s documentation states: “Where an interest in a property is beneficially shared between relatives, the value of the resident’s interest will be heavily influenced by the possibility of a market amongst his fellow beneficiaries. If no other relative is willing to buy the resident’s share it is highly unlikely that any ‘outsider’ would be willing to buy. The value of the interest, even to a willing buyer, could in such circumstances effectively be NIL.” Source:- Charging for Residential Accommodation Guide (CRAG) Section 7.019.

Generational Inheritance Tax Planning Joint Ownership Generational Inheritance Tax Planning

Part Share Valuation of Property Single Person - IHT Mr divorced, has Estate of £1m and one daughter Dies 2009/2010 Tax year so: £1 million – 1NRB = £675,000 x 40% = £270,000 IHT Net Estate Remaining = £730,000 Will passes inheritance absolutely to daughter

Part Share Valuation of Property What happens to the IHT liability of future generations??? Part Share Valuation of Property Daughter has her own estate valued at Nil Rate Band. She has one son. Her Estate has increased by £730,000 from her Dad’s inheritance. She dies. Her Estate over the Nil Rate Band is worth £730,000 IHT payable on her death = £730,000 x 40% = £292,000 IHT

Part Share Valuation of Property Benefit of the use of Trusts In 2 generations £270,000 + £292,000 paid in IHT So of the original £1,000,000 Only £438,000 remains for the Grandson If Dad had used Trusts and named his daughter and grandchildren as Beneficiaries… £730,000 would remain!

Plan ahead for incapacity with a Lasting Power of Attorney Joint Ownership Plan ahead for incapacity with a Lasting Power of Attorney

Part Share Valuation of Property What is a Lasting Power of Attorney? Legal document in which you can appoint someone you trust (your attorney) to make decisions for you should you lose capacity in the future You can choose more than one Attorney Lasting Power of Attorney for Health and Welfare Lasting Power of Attorney for Property and Financial Affairs

Part Share Valuation of Property Property and Financial LPA Operate your bank accounts Claim your benefits, pensions and allowances Pay your bills Buying and selling property

Part Share Valuation of Property Health and Welfare LPA Give or refuse consent to types of health care Whether you stay in your own home Whether you move into a care home Which care home is appropriate for you Daily routine, dress and diet

Part Share Valuation of Property Don’t Leave it until it’s too late You can only make a Lasting Power of Attorney if you have mental capacity If you don’t have a Lasting Power of Attorney your family have to apply for deputyship through the courts Applying for Deputyship – costly and expensive

Joint Ownership Any questions???