For most of us, our family home is our main asset and so, naturally, we want to leave its entire value to our loved ones when we die, but you may already know someone who has been forced to sell their family home and use the proceeds to pay care fees… That is where a Life Interest Trust (LIT) can help.
Please contact Greendrift Wills If you are interested in discussing how a Life Interest Trust could help protect your family home; we have the expertise to insert such a Trust into your Will, as well as severing a Joint Tenancy on your property (if required). Our fee for setting up a pair of Will Trusts for a couple is £260 and for severing a joint tenancy is £60 (these are in addition to our standard Will writing fees).
Shall I Leave My Share In The Family Home To My Spouse/Partner?
You will naturally wish to ensure that when you die, your spouse/partner continues to enjoy the full benefit and security of the family home, and leaving them your share in it may seem like the right thing to do; but this can have unintended consequences for the surviving spouse / civil partner:
- Sideways disinheritance – this occurs where a surviving co-owner forms a new relationship and changes their Will in favour of their new partner and any stepchildren,
- Care Costs – with an ageing population, more of us will be expected to fund our own care costs. If the surviving partner is now the sole owner of the family home, then the entire value of that property may be included in the local authority’s financial assessment or means test, and go to fund his/her residential care.
Shall I Leave My Share In The Family Home Directly To My Children?
Leaving your share in the family home directly to your children may also have unintended consequences:
- Family Disagreements – Family rifts or disagreements may develop about how the home, which your children now part-own, is used and managed.
- Other Pitfalls – Children can divorce or become bankrupt, leading to potential claims against the family home, or they may develp issues with substance abuse, gambling or be vulnerable in some other way.
Benefits Of Leaving My Share In The Family Home In Trust
Life Interest Trusts are commonly used in Wills where a couple are co-owners of a property, to ‘ring fence’ assets and give peace of mind that they are protected for future generations, whilst at the same time ensuring that the surviving co-owner has full use and enjoyment of the Trust asset during their lifetime.
The deceased partner’s share in the family home is held on trust eg for his/her children to inherit in due course.
Co-Ownership of the Family Home
Many couples co-own their home as Joint Tenants, which means that when one partner dies the survivor immediately becomes the sole owner. If this surviving partner then goes onto require residential care the entire value of the property can be taken into account in any Local Authority financial assessment or means test and subsequently used to fund their residential care.
To address this, couples can sever the tenancy and change how they co-own their family home, from Joint Tenants to Tenants in Common. The effect of this is to give an ownership share (typically 50%) to each partner, which they can then leave in their Will as they see fit.
Writing a Life Interest Trust into your Will
Having severed the tenancy, Life Interest Trust Wills can be drafted, whereby each person leaves a life interest in the property to their spouse (the ‘life tenant’), enabling him/her to live in the home, or indeed another home if they choose to move, before ultimately passing their share to the nominated beneficiaries (children etc). The deceased’s Will appoints at least two Trustees, one of whom could be the surviving spouse, to manage the Trust.
Government Funding Reform?
Despite many announcements over the years, by politicians of all parties, regarding the need for reform to the funding of long-term care for the elderly, nothing concrete has yet been agreed. The most recent Queen’s Speech (May 2021) contained no new funding pledges or proposals for social care reform, other than a promise by the Prime Minister that “Later in the year we will bring forward proposals to reform adult social care so that every person receives the dignity and security they deserve”
Some Technical Details Regarding Trusts
A Life Interest Trust (also known as an ‘Interest in Possession Trust’ ) is an arrangement whereby the value of an asset (often the family home) is protected for passing onto future generations, whilst the surviving spouse’s right to occupy the family home is also protected, but without ever becoming the legal owner.
A Life interest Trust, when set up in a Will, is known as an immediate post death interest (IPDI) and treated by HMRC as forming part of the estate of the surviving partner on their death; the ‘Spousal Exemption’ applies and no Inheritance Tax is therefore payable when the Trust is created on the first death, and neither is this type of Trust subject to periodic or exit charges.
Any Trust which includes property must have at least two Trustees appointed to manage it; these persons then become the legal owners of the Trust and with this comes a number of legal responsibilities relating to the Trust’s correct administration, therefore the choice of suitable Trustees is an important one.
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Long Term Care
About 1 in 3 women, and 1 in 4 men, end up needing some sort of care and, with an aging population, these figures are likely to rise even further in the future.
With average residential care home fees ranging from £25,000 to £50,000 pa, some people are forced to sell their homes to fund their care (if you only need short-term or temporary residential care, your family home won’t be included in the local authority means test, but it will be if your need for residential care is permanent and your family home is no longer occupied)
Anyone with assessed capital assets above £23,250 is required to fully fund their own personal and residential care.