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Since my ma passed a couple of years ago, my dad has become increasingly concerned about what's going to happen to his estate when he goes too.
He owns the house and has decent savings, all less than inheritance tax though.
A neighbour of his keeps telling him about putting his house in trust and how he must do it. We don't really understand it all to be honest.
My mum was a legal secretary so had a grasp of some of this stuff, she was very cynical about it and said "times have changed, if you aren't going to pay for your care, then who is!?"
I get this, my grandma's care was £2000+ a month, it ate all she had, but she was somewhere decent.
Are there steps we definitely should take?
We've started doing power of attorney. My dad has approached a financial adviser, she's given him loads of info which I'm going to look at tomorrow. She says it will cost £2000ish to sort out (whatever it is she is actually going to do.)
You cannot shelter assets at this stage. Just focus on the income shortfall v care costs, add in the care allowance which is not taxable.
So say total net income = 20k pa
Care costs = 24k
You are looking at an income shortfall of 4k pa. Look at the cash savings pot and what income you can derive from it, say 5%. Maybe rent the house.
Being brutally honest men do not live long in care homes, depends on what type your dad is though.
There was a big scam re houses in trust, look it up.
Be careful - deliberately hiding assets to avoid care costs will simply mean they will be included in assumed income anyway. There have been cases where this has led to the old person not being able to afford more than the 'basic' (read pretty poor) level of care home, as the trust/remaining relatives haven't released the assets back to the older person for him/her to afford better.
There will also be potential tax implications.
£2k seems a lot - Power of Attorney (there are two types - one for control of financial affairs and one for medical care) should be less than half this. The rest is presumably going to set up some sort of trust. There may well be other ongoing costs as well.
My dad tried to do something similar to protect his house as best he could when he knew that he was going to die. Unfortunately, his cancer killed him sooner than he (and the doctors) thought it would and the changes he put in place were not in effect.
Inheritance tax is a bitch.
The £2000 is to set up the trust type thing. Power of attorney has been done as a separate thing, think it was about £400.
I've just read through the info we've been provided on setting up Property protection trusts etc', I sort of get it, but find it a bit baffling.
My instinct is that it's not all it's cracked up to be. My mum was pretty savvy and I feel like she would have sorted it if it was the right thing to do.
We're fortunate in that we have a fairly uncomplicated family. There's me and my sister and three grandkids between us.
We're not trying to avoid care home fees as such. I like to think we're a pretty sensible bunch, we don't feel we "deserve" anything and believe you should pay if you can etc'. I think my dad is just worried about being taken advantage of and losing out because we don't understand all the intricacies.
exercise, as above a healthy degree of caution.
ask yourself, and them, what they are selling vs. providing, and what's in it for them. fee based advice is likely better.
A bit - a bit - of internet search should throw up questions and expected answers.
If he needs a nursing home he should also be entitled to certain benefits iirc - we had similar issue with a relative (admittedly.with dimensia) and with pension and benefits the net cost of the care was surprisingly low, with the balance being taken out of the estate when she died.
Going through same issues as you with an elderly uncle now, personally I don't think trust is of.any use, especially if youre under inheritance thresholds.
What age/health is yiyr dad? Is he expecting to live more than another 7yrs? This is important for Inheritance tax reasons and advice may vary considerably depending on the answer.
Is your priority minimising Inheritance Tax or care costs? For Inheritance Tax, the nil-rate band is £325k, ie, if he leaves less than that there's no tax. added to that is a new nil-rate band for anyone leaving a house to direct descendants, this is currently £125k and increases up to £175k by 2020. In addition to that, if your Ma's estate (excluding what she left to your Dad) didn't use up all her nil-band rate, his estate can use the rest. So if she left everything to him, his estate can be up to £650k without tax, if she left everything to him bar £50k, his limit would be £600k (plus the new house related band). You only need to think about minimising IHT if it will be over these limits.
Just done both power of attorneys for my Mum. Cost £80.
When he passes away, as long as he has a will, what is left will be distributed as per his instructions. Without a will, it goes straight to his next of kin.
What's there to worry about?
If he was over the IHT level, then yes there are some things you could do to limit your tax costs, but under it, not a lot or a need - I think
Edit: Amazingly, there are govt web pages that tell you this kind of stuff: https://www.nidirect.gov.uk/articles/dealing-deceased-persons-money-and-property
Inheritance tax shouldn't be an issue, I'm pretty certain the estate don't be that much!
I think it's the dude over the road who's done all this stuff making my dad think he has to do it too. He's just worried he'll go into care at some point and end up with nothing. But as people have pointed out above, taking his pension income onto a, care costs might not be that much.
If my dad were to gift money to close relatives (I believe £3000 per person is allowed tax free) could that be seen as deliberate disposal of means?
I feel that would be a nice thing to do for the kids, he could lock money away for them until they're 18 or something?
Your dad can give 3k pa and any amounts to the non recipients of said 3k, as long as it does not affect his lifestyle. Ie, he earns 20k, lives off say 12k, gifts 3k to you, he can gift the balance of 5k in amounts of 250 to everyone else. These gifts are out of his estate on donation.
Check the amounts though, I think it's 5k for a wedding.
I d keep a tally of the 3ks, just on a scrap of paper for future ref.
I d also keep 6 months care costs in a separate account to get you started, and have a look round the homes so you know where to go. Otherwise in an emergency you won't be thinking clearly.
Good luck
I’d be very sceptical. If the adviser can’t relay what they are doing for you to understand then they’re not doing their job well IMHO.
Plenty of warnings / horror stories on the internet eg:
Radio 4’s Money Box covered this as well in the last 12 months.
What is the purpose of the trust? Sounds like IHT isn’t a concern, therefore the only reason is to avoid care fees. A local authority can look back indefinitely and disregard the trust if they feel it fell under deliberate deprivation of assets rules.
Sounds like a solution looking for a problem.