With house prices rising increasing people’s net worth, failing health and concerns about the cost of residential care, many retired homeowners are considering ‘gifting’ (signing over) their property to their children as a way of preserving their assets. They mistakenly believe gifting will reduce the value of their estate and help them minimalise costly care home fees or allow them to pass on the responsibility of managing their assets when they become vulnerable, incapacitated or ultimately on death.
How a Will Trust Can Help Couples Preserve Their Estate
For couples, leaving your property in a Will Trust is an alternative to gifting and can ensure you protect and preserve your hard earned asset for the next generation as much as possible.
Will Trusts are commonly used for married couples and civil partners to preserve some wealth by splitting ownership of their property, so each person, known as ‘tenants in common’ owns 50% of the property.
Upon the death of the first partner their share of the capital value is left to the Trust rather than to the surviving partner. This means that the capital value is safeguarded for those they have chosen to benefit from the capital and is technically not part of the survivors assets. However, this can be an advantage or disadvantage to the survivor so legal advice about the benefits of a Will Trust should always be sought from a solicitor.
Also, prior to setting up a Will Trust couples need to be sure that the surviving partner will be financially comfortable without owning half of the family home.
How a Single Elderly Survivor Should Preserve Their Capital
Gifting after the death of a spouse or partner is risky for elderly survivors. Legal advice should be taken before making any significant gifts of property or other assets.
Also putting personal property (for example a bank account) into joint of you and your children for access and convenience for the survivor’s benefit can be taken legally as gifting and bear some risk as when you die such may cause problems to your executors in dealing with the terms of your Will.
Rather than a Will Trust or gift of personal assets it is advisable to consider putting in place a Lasting Power of Attorney to deal with finances and property. In this way your chosen attorney with your consent can prudently manage your finances to make shrewd decisions with the effect of preserving your capital.
Why gifting may not be the best way to preserve your estate
Whilst gifting your property is permitted, even if you wish to continue living in it, there are many potential issues you and your offspring need to be aware of before making that decision.
Care Home Fees: Depending on the reason it was gifted the local authority may decide it’s a “deliberate deprivation of assets” to avoid paying residential care home fees, which is more likely in cases where the asset is worth a significant amount.
Inheritance Tax: Gifting property and assets could be considered as a “potentially exempt transfer” (PET) for purposes of Inheritance Tax (IHT); this means that your gift will only be exempt from IHT if you survive more than 7 years after gifting.
Risk of Eviction: If you plan to continue living in your property after you have signed it over to your children, you will no longer be the legal owner. This means you could be evicted if your children needed to sell the property, for example, due to a divorce settlement or bankruptcy as the property will form part of their estate.
Other considerations: Rules of gifts and benefits, capital gains tax and outliving your children are also issues you will need to seek advice on if you are considering gifting your property and assets.