Keeping hold of your property

The fear of having to sell our homes to pay nursing-home fees, when we would rather pass them on to our family members is a common scenario facing many of us today.

One possible solution that could enable you to avoid having to sell your home is the setting up of a basic discretionary will trust commonly used for inheritance tax (IHT) planning. This is where half the house passes into trust for any children on the death of the first spouse. The trusts may also mean that property, in effect, could be disregarded when local authorities assess how much an estate should pay towards long-term care.

Under the English system, anyone with savings or capital of more than £22,250 is required to pay for his or her own care fees. If you have a property worth more than this, as most people do, it will be disregarded if it is inhabited by a partner, former partner or relative.

If you are the only person living there, the local authority may force you to sell it to pay for care. However, if it is jointly owned by a trust for your children, the council cannot make a claim against it. They may be able to place a charge against the property so they receive some of the proceeds when it is eventually sold, but even then the local authority can only obtain half.

And if your family doesn't want to sell and the local authority is still pursuing a claim, their own guidelines state that the value of a half-share of a property is in effect nil.

With forecasts that show funding long-term care is set to increase considerably over the next 20 years, planning is the key.

Discretionary will trusts
Discretionary will trusts have traditionally been used to transfer a half share of a jointly owned property to any heirs on the death of the first partner, thereby using up both inheritance-tax allowances, now £312,000 (tax year 2008/09).

Since the last budget, this is no longer so important because you can now transfer your allowance to your spouse on death. However, these tax-planning devices may provide a relatively simple way to reduce the value of your home as seen by care authorities and make it much harder for them to insist on its sale.

Suppose a couple, have not implemented any trust planning, the husband dies and his half of the property passes to the wife. She needs to go into a nursing home, at which point the local authority could, in some circumstances, force the sale of the house. In other cases, the payment of care fees could be deferred until she died and the property was sold.

If, however, the property had passed into trust, the property could not be sold while the spouse was still alive, and would be equally difficult to sell on death unless the children agreed.

The Department of Health's viewpoint is that where a resident is a joint beneficial owner of a property it is the resident's interest in the property which is to be valued as capital, not the property itself.