Protect your home (care home fees)

What happens to my estate if I get taken into care? 

You will have been visited by Social Services, who will inform your Local Authority that you can no longer look after yourself. The Local Authority then decide where you will be placed and will be responsible for the payment of your care. So far so good… The next stage however, is the council determining how they will get the costs back from you. If your total capital (including property) is above £23,000 then you will be paying the council until your funds reduce to this amount. Once you reach the £23,000 your payments reduce until you have £14,000 remaining. You are allowed to keep £14,000. Compare this to Inheritance Tax at 40% above £325,000 and it becomes clear that your ‘Care Costs Tax’ is 100% above £14,000!

Further statistics to consider. The average care home charges £30,000 per year for your care (data taken in 2008 by Age Concern). Approximately 70,000 people were forced to sell their homes in order to pay for care costs in 2007 (The Guardian, 17th November 2007). As many as 2/3rds of 45-65 year olds have made no financial provision to pay for long term care or protect their assets. And finally, most scary of all, it is projected that up to 1 in 2 of us will need to go into care (data from Help the Aged),no doubt as a result of our longer life expectancy. 

Is there anything I can do about this?

You can set up a Family Protection Trust and transfer all your property and savings into this. However, we would need to assess your personal situation to ensure this is a viable option for you. Our interests lie in protecting your assets and ensuring as much as possible is left to your beneficiaries rather than the state. 

Are there any other options available to me?

Yes there are, but these are not as effective and are more risk averse. Your options would be:

  1. Do nothing and leave it to chance that you will not require any form of care before you die.
  2. Distribute your wealth amongst your family now. This option carries considerable risks as it may leave your family liable for large Capital Gains Tax Bills and as a result of your donations they may no longer be entitled to any benefits they currently receive. You may find your early generosity will also spark family fall outs.
  3. Set up an Annuity Plan to cover the Care fees potentially due. This policy will vanish on death and the biggest risk is if you die within a few months of the policy’s inception. It may be possible to insure against this. Speaking to a qualified FSA Financial Advisor should give you a clearer picture of the advantages and disadvantages.
  4. Setting up a Trust in your Will that is set up on first death. Probably the next best solution as it is proven and cost effective. However, only the assets placed in the trust are guaranteed so the survivors share would still be left at risk.

What are the benefits for me if I set up a Family Protection Trust?

  1. You won’t have to pay Probate Fees on the majority of your assets in the trust that you would otherwise have had to pay for when you die. So, for example, if your estate is worth £250,000, the 3% Probate fee would be £7,500, unarguably a significant saving.
  2. Because your assets are contained in the trust, on your death they can be distributed quickly and easily following the instructions left in your Will. This will save the time taken by the Probate process.
  3. If your beneficiaries choose, they could retain some of your estate in the trust, for example, if a son or daughter may spend the money unwisely (possibilities include; drug or alcohol addiction or a gambling problem).
  4. Finally, your Will may be contested under the 1975 Inheritance (Provisions for Family and Dependants Act), a Trust cannot be contested so you can be secure in the knowledge your estate will be distributed as you wish.
Why make a will

Eleven good reasons why we should all make a Will:

  1. To avoid dying intestate:

    Intestate means you have not left a Will after your death. The result of this is that your assets will be distributed as per the laws of intestacy. You could assume that this would mean your husband/wife would inherit everything – not necessarily! Your estate could be contested by children and/or family resulting in the sale of the family home in order to claim the financial rewards. Not having a Will will also mean delays in the distribution of your estate and could cause needless financial hardship for your family.

  2. Appointing Guardians for your children:

    If the worst happens to you while you still have children under the age of 18 and you have not appointed legal Guardians, Social Services may make the decision for you which could mean either being placed with someone you would not have chosen or your children ending up with foster parents.

  3. Appointing Executors:

    You should choose someone you trust to be responsible. If not, they will be chosen following strict guidelines and may not be suitable for the role. Instead your family could appoint professionals who would charge to carry out this service which would reduce your total estate amount to be left to your family.

  4. Minimising Inheritance Tax:

    Every year the taxman collects in excess of £3 billion. You can seriously reduce the amount of 40% tax you would have to pay or even eliminate it altogether with a properly written Will.

  5. Preventing your home being sold to pay for Nursing Home fees:

    Statistics show 50,000 homes a year have to be sold to meet care costs. With advice and careful planning your estate can be protected for your loved ones.

  6. If you are not married:

    If you have a partner but choose to be unmarried they may not receive any of your estate unless you write them into your Will.

  7. Providing you with peace of mind:

    By writing a Will, you can leave your estate to who you want. This may include something for friends or charities. You may also have children from a previous relationship who may otherwise have been overlooked.

  8. Preventing unnecessary expense and delays:

    The administration of your estate with your Will and grant of probate is a far quicker and cheaper process than if you do not have a Will. You will also save money by not paying additional bank and solicitors fees and your loved ones will be spared additional stress and worry at such a difficult time.

  9. Preventing certain members of your family benefiting when others would not:

    Not all family life is plain sailing and in your Will, you choose who will receive what.

  10. Preventing the state inheriting all your assets:

    If you do not have any remaining close family then unless you write a Will, the state will inherit your assets.

  11. Preventing disputes:

    Writing a Will should avoid any unnecessary difficulties with your beneficiaries who may feel some are more deserving than others.

What happens if I don’t leave a will?
  • Your family will be left you sort out your affairs which could be a lengthly, costly and stressful process.
  • Your spouse may not receive all of your estate.
  • Your children will have the authority to sell assets (i.e. the family home) in order to access their inheritance.
  • Social Services will decide what happens to your children.
  • HM Revenue and Customs receive all the tax you could have avoided and your family receive considerably less.
  • Your bank and/or solicitor will charge considerably more to sort out your unorganised affairs.
  • Your friends and charities will receive nothing.
Who should write your will?

Doing it yourself:

DIY Will packs are readily available from retailers or you can write one yourself. However, you would not receive professional help or advice if doing this and could end up not distributing your assets in the most economical way. Your Will may not be worded correctly and could be contested. If you get it wrong, it will be your beneficiaries who are affected and they can’t ask what you meant after you are gone.

Doing it Online:

You have your Will written for you by an online provider. They collect your instructions and from this, draft your Will. This approach lacks the personal touch and you may not end up with the detailed Will you required.

Doing it through your Solicitor:

Unless your Solicitor is ‘STEP’ qualified, they may not be specialists in Will writing. Law is by definition an extensive and complex subject and many solicitors choose to practice in other areas. The Law Society also no longer insists that Solicitors sit exams in Will writing and it is worth remembering not everyone who works in a Solicitors is a Solicitor.

You will probably also find that your Solicitor does not operate on a ‘fixed fee’ structure, rather an hourly rate, so it could be costly. Alternatively your Solicitor may offer a ‘loss leader’ rate providing you appoint them as your executors, which could end up costing you thousands of pounds. A member of your family or a friend you trust with this responsibility can do this for you.

Doing it through your Bank:

Your bank will either send you a form or an official will take your instructions which is then passed on to a processing centre. This option is unlikely to offer any personal advice on how to structure your Will so you may end up with a Will not best suited to your needs. Banks that appoint themselves as your executors could take as much as 5% of your estate in fees after you die.

And finally. Doing it through a professional Willwriter:

A Willwriter will take your instructions, give you advice as required and then draft your Will according to those needs. Most will visit you at home at hours to suit you. The important thing is to ensure your Willwriter is properly qualified – ask to see their qualifications. Willwriters should have professional indemnity insurance, subscribe to a Code of Practice and be a member of a professional body (which would have an independent complaints procedure, should the need arise).

Things to watch out for: Beware of ‘special offers’. Often these are advertised in the hope that you will purchase ‘additional extras’ which would prove costly. An example would be if they offer to become your executor or offer to assist in the administration of your estate after you are gone. Many require payment up front – leaving you to wonder what would happen if the company no longer exists after your death?

Costs of making a Will. Do not get caught out with VAT – ask if the quote includes it. Factors to consider include; How complicated your requirements are, how qualified your Willwriter is – a fully qualified Willwriter is required to undergo ongoing training and will therefore be more expensive that someone who is not qualified. You also need to factor in how much advice you need/get and the explanation of it once your Will is written. Make sure you have a supervisor to ensure your Will is signed and witnessed correctly.

A summary of what to ask your will provider:

  • What qualifications have their staff passed in preparing wills?
  • How many hours compulsory training per year do their staff complete in preparing wills?
  • Do they have professional indemnity insurance?
  • Do they provide details of all their fees in advance of the appointment?
  • Do they provide advice to tailor your will to your exact circumstances?
  • Do they provide advice to minimise inheritance tax and shelter assets from long term care?
  • Do they provide a two visit system to ensure the will is signed and witnessed correctly?
  • Do they provide an independent system of redress if the client is dissatisfied?
  • Are they working to a Code of Practice with independent approval – such as from the OFT?
Protecting your wealth

How do I protect my home?

Problem 1: Most people are Joint Owners of their homes with their partner or spouse. Upon one owners death the property automatically passes over to the survivor. However, this may cause problems in future, for example, if they remarry the property passes to the new spouse which would disinherit any children from the first marriage.

Problem 2: Upon one owners death, the remaining survivor needs to go into a Nursing home. The Local Authority will use the money from your house to pay for the care home fees, again disinheriting any children.

What’s the answer? The answer is to change the way your home is owned. At present you will be Joint Owners. The key is to change this to what is called ‘Tenants in Common’. The process is straightforward and you do not need to inform your mortgage company if payments still remain on the house.

What are the benefits of changing to Tenants in Common?

Each ‘Tenant’ will own one half of the property and each should write a Will detailing what should happen to their half of the property. This can include leaving their share to their own children so in the event of the surviving spouse remarrying, they are not disinherited or by leaving their half to the children, only half of the house value would go towards nursing home costs if the survivor needs to go into care. Recent case law has shown that the value of half a house is effectively Nil (so long as the other half is unwilling to sell), so the Local Authority may not even be able to charge the cost of care against the house.

Is there anything else I can do? We would also recommend that when you write your Will, provisions should be made via a Will trust to delay the gift of half the house to prevent the survivor being forced out of the home by the children (to whom the half was left) and also to ensure the survivor access to the capital if the house is sold. This Will trust is called a Life Interest Trust or Property Protection Trust.

How do I protect my savings?

The same types of trust can also be used to protect your savings in the same way. They are also called a Life Interest Trust or Flexible Life Interest Trust.