Understandably, many people ask how they can avoid nursing home fees. The fees are extremely costly – around £1,000 a week – and can quickly decimate an estate. I had a call from a client recently who said that his mother-in-law’s care had cost £400,000 in the last few years of her life. He wondered whether there was any planning that he and his wife could do to prevent the same thing happening to their estates, in turn.
There are several, relatively straightforward strategies which can be used when writing your Will, with the aim of protecting the half share in the family home belonging to the first to die from being used to pay for nursing care for the surviving spouse.
Option 1 – Leave half of the house to your children on the first death
The first option is in many ways the simplest. This is worth considering if your children are (a) already mature adults, (b) extremely trustworthy, (c) financially beyond reproach, (d) in rock steady relationships and (e) on unshakeably excellent terms with their other parent. Anyone still reading? Thought not. Anyway, in that scenario, you could consider leaving half of the house to your children outright, on the first death. The hope is that if your spouse then required nursing care at some point, the local authority making the assessment would not be able to claim on your half share of the house, because it would not belong to your spouse but to your children, instead.
However, worst case scenario, if one of your children got divorced, was made bankrupt or died, that might force a sale, obliging the surviving spouse to sell up and move. The other downside is that unless your children moved in with their surviving parent, there would be a potential charge to capital gains tax on any gain in value on their half share of the house during their period of ownership, which would be realised if the house was then sold on the second death.
Option 2 – leave half of the house in a property protection trust for the surviving spouse
Usually, a preferable solution is to leave your half share of the house on life interest trusts for your spouse on the first death, under your Will, with the capital ultimately passing to your children on the second death. This arrangement is sometimes known as a ‘property protection trust’, and guarantees that your spouse will be able to live in the house for life, whilst protecting the capital for your children. It will also have the side-effect of ensuring that your children inherit your share of the house on the second death, even if your spouse was to remarry in the meantime.
This arrangement should not have any adverse inheritance tax consequences, as long as under the terms of the trust, the house passes to your children outright on the second death, which will ensure the continued availability of your ‘residential nil rate band’ (currently £175,000 per person). In addition, there should not be any capital gains tax to pay on any gain in the value of the house between the first and second deaths, as the trustees can claim ‘principal private residence relief’ as the surviving spouse has a right to occupy the property for life.
The surviving spouse can be one of the ‘trustees’ who will run the trust following the first death, to give the surviving spouse a say in proceedings, and the trustees can buy or sell property within the trust, if the surviving spouse wanted to move house.
In either case, it is essential to ensure that you and your spouse own your property as ‘tenants in common’, so that your respective shares of the house will pass under your Wills on the second death. If you currently own as ‘joint tenants’, it will be essential to sever your joint tenancy, otherwise that would defeat the relevant provisions in your Wills.
The success of this type of planning in avoiding nursing home fees cannot be guaranteed, but it has been around for a long time, and offers a good chance of protecting the value of half of your house against possible care fees. It would not be possible for the council to argue that the surviving spouse has ‘deliberately deprived’ themselves of assets with the intention of avoiding paying nursing home fees, because they never owned the share of the family home belonging to the first to die. This arrangement should ensure that your half share of the house is safeguarded for your children’s ultimate benefit.