If I had a quid for every time someone has asked me about avoiding care fees or giving their house to their kids so they can pay less inheritance tax, well… I’d have a few quid! There are still schemes doing the rounds which claim to be able to protect your home from being ‘used’ to pay care home fees.
They’re all garbage, in my view, because they’re all predicated on any transaction being done for inheritance tax purposes. I have seen people with a zero inheritance tax liability sign up to these schemes, which makes no sense and certainly; wouldn’t bear scrutiny from the powers that be if it came to it.
Let’s be clear: You cannot give your house away and continue to live in it, and have that transaction be effective for either inheritance tax or care-fees planning. If someone else owns your house, do you realise how vulnerable that makes you? If you give your house to your daughter and she gets divorced, your home is in the mix for the financial settlement!
If you’ve given your house to your daughter and live in it rent free, then that transaction would be set aside for inheritance tax purposes so would negate the effect of giving it away in the first place. If HMRC get wind of it, there could be income tax implications for you too, as the rent you’re not paying could be deemed to be an income and you could be taxed on it.
If, on the off chance your scheme works and your home cannot be factored into a local authority care fees assessment then you’re entirely at the mercy of that local authority to find space for you in whatever accommodation it can find, which might be 40 miles from your family. Why, oh why would you remove the power of choice over your eventual long-term care like that?
Wealth gives you choice, it gives you freedom, so don’t give it up lightly, however nice the care fees avoidance trust scheme salesperson is or how much you dog likes him. Kick him out of your home and be secure in the knowledge that you’ve retained some control over your future.
By the way, if anyone can show me a scheme which does work then I’m prepared to be wrong on this, but I’ll bet it never happens…
ACTION POINT: Keep your wits about you when it comes to convoluted planning. Simple is best; simple works.
Look After Number One
Estate planning is largely about passing wealth to the people or causes we care about. There may be a benefit in doing this before we die with lifetime gifts, or maybe we’ll wait till we’re gone.
For most, it will be a combination of the two. In it all though, look after number one. There is no sense in doing detriment to your own security and financial wellbeing in order to benefit others.
I love my daughters very much but if it comes to a choice between helping them financially and me having the option of a five-star care home, then they’re going to be on the wrong side of that choice!
Ideally of course, we would all love to get to the stage where we have all that we need and plenty left over to make generous gifts. This, for me, is the definition of financial success. But if we have to make a choice, then we should definitely look after our own needs first.
Folks listening to this will either go, ‘Well, duh!’ or will struggle with the idea of putting themselves first – we’re all different in that regard and I’ve seen a whole spectrum of responses to this from clients over the years. But I would always encourage you to put yourself first.
I reckon that’s most of what we need to know and do to get our estate plans in order. As ever, it’s about taking the time to think through what we’d ideally like to happen, both while we’re alive and when we’re going, and then positioning the pieces to make sure that happens.
You should talk to a professional financial planner and a solicitor if your needs are in any way complicated. But don’t leave this to chance. It’s the ultimate expression of being intentional with your finances.
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