The Home Protection Plan – Asset Protection – 0800 298 5208PROTECT THE FAMILY HOME FROM BEING LOST TO
Asset Protection in England & Wales
INTRODUCTIONAsset Protection with the Home Protection Plan has a number of objectives, but anecdotal evidence suggests that anything between 40,000 and 70,000 homes are sold each year to cover the owner’s care fees. Anything up to 11% of the value of your home could be lost to Probate fees (with 3.5% being more usual), relatives or so-called dependants could demand a share of your estate and keep it in Court (expensively) for years. See Jarnddyce v Jarndyce – it is fictional, but not so far from the truth! Asset Protection through a Home Protection Plan means the equivalent of Probate (for the house) is much faster and less expensive, and the property is not subject to the Inheritance (Families & Dependants) Act 1975. Parents are also seeing nest eggs built up as intended inheritances for their children decimated over short periods once in care, or half of the inheritance or more being taken in their divorce settlement. The Home Protection Plan can help with both. With advance planning this need not be the case. There are ways to protect the family home for the next generation. This guide highlights the opportunity for planning, briefly describes some of the relevant regulations and suggests a simple strategy to protect the family home. This is a highly specialised area. Local authorities around the country are experiencing severe financial constraints in funding care. This in turn leads to more aggressive assessment and the failure of steps taken too late. If done too late, these plans won’t work at least as far as Care Fees are concerned, though that should never be the sole reason for arranginging one. PROFESSIONAL ADVICEProfessional advice is essential. This guide is for general guidance and information only. Specific situations require specific advice and this guide is no substitute for the appropriate advice, which we wil provide once we have your initial deposit. WHAT IS THE HOME PROTECTION PLAN?The Home Protection Plan is a strategy designed for homeowners, whether single or couples, usually living on their own, to put the home beyond the reach of contributing to care fees and to achieve one or two other benefits set out later in this document. The strategy involves the transfer of the home to a trust. Under the trust, the settlor (the donor/former homeowner) is also a beneficiary so that once the trust is created he, she or they can continue to live in the home for the rest of their life or lives or for as long as is wished, on a guaranteed basis. The trust gives a guaranteed right of residency and security of tenure for life or until the point where continued residence in the home is no longer required or appropriate. The trust would be the new owner of the home and therefore the home should no longer count as a capital resource. Despite the fact that the trust now owns the home, the former homeowner(s) still have flexibility. As well as rights of residence and security of tenure, there is the flexibility to move to a smaller (or cheaper) property and to retain all rights of residence and security of tenure in the new home. THE BACKGROUNDMany elderly people are desperately looking for ways of protecting their estate to pass it on to the children and to avoid it being wiped out by care home fees. Giving the home away to the children is sometimes seen as the solution (not to be recommended). There is also the misconception that if you give the home away at least 6 months before going into care, the local authority cannot touch it. There is a so called “six month rule” in the legislation but this is a rule applicable to a specific circumstance and should not be relied on. In the real world, many local authorities have rules of thumb; some will only look back over one or two years but others may look back over a much longer period. “Deliberate deprivation” is a relevant concept and makes things more difficult. Cash strapped local authorities are cracking down on people who they think are trying to avoid paying care fees and they are becoming increasingly sceptical about people saying gifts were made due to the natural love and affection for their children. This guide covers these various points briefly and highlights a simple and uncomplicated approach to sheltering the family home through a recognised planning technique, which has a track record. THE BASIC POSITIONThose who cannot afford to pay privately for care must look to the local authority for funding or assistance with funding. The resident has a free choice of home, subject only to the fee level quoted, which is usually within the funding arrangements available to the local authority. Both income and capital resources are assessed.
Virtually all income is assessable. The principal exception relates to part of an occupational pension in certain circumstances. A small amount of income (currently £21.90 per week) is not assessed, amounting to little more than pocket money. This is literally intended to cover toiletries, hairdresser etc. This guide concentrates on the family home. It is not a guide to other potentially assessable capital. Advice on other capital is available on request. THE HOMEThe starting position is that the home counts as capital for financial assessment purposes. The value of the home, or an interest in it, is taken account of as a capital asset. It comes into the reckoning for means testing at its market value, less 10% (assumed costs of sale) and less any mortgage liability. Once sold, the home simply comes in as cash. The home is disregarded under certain circumstances:
The local authority may, at its discretion, ignore the value of the house if it is the permanent home of a carer, or in one or two other limited situations. Clearly the local authority’s discretion ought not to be relied on.
THE SOLUTIONThe solution is to ensure that the home is not personally owned on entry into care. The local authority’s financial assessment can then legitimately and properly be completed on the basis that the home is not a capital resource of the resident. The solution involves putting the home into a trust, so that the trustees are the owners. Features of the trust are:
FOR WHOM IS THE HOME PROTECTION PLAN SUITABLE?The Home Protection Plan is suitable for:
The Home Protection Plan is not suitable for:
NO ACCESS TO CAPITALFor the complete avoidance of doubt, the Home Protection Plan is only suitable for those who wish to pass the home to the control of trustees, who want guaranteed occupation for the rest of their lives and subject to that want their home to pass to their children or other chosen beneficiaries. It is not suitable for those who may want access to the capital locked in their homes, whether that be by equity release or on a sale of the home in the future. MARRIED COUPLESThe trust described above is equally applicable to married couples as to single owners. In fact, married couples entering into the strategy will have the additional advantage that they do so at a time when if one of them went into care, the home would in any event be disregarded due to the other spouse still living in it. DEPRIVATIONLocal authorities have a number of remedies available to them to counter planning in certain circumstances. The primary remedy available to local authorities is “deliberate deprivation”. A local authority may treat a resident as possessing the home, or an interest in the home, if it can show that the resident deprived himself or herself of the home for the purpose of decreasing the amount that he or she may be liable to pay for his or her care accommodation i.e. the local authority can still treat the resident as owning the home and can financially assess the resident accordingly. Anyone contemplating using this strategy can avoid the appropriate deprivation rule through one of two routes:
TIME LIMITThere is much misinformation in circulation of various safe time limits. A typical example of the confusion is that a gift of the home will be safe from assessment by the local authority from 6 months, 1 year, 2 years, 3 years, even up to 7 years (the latter being very often confused with the relevant IHT risk period) prior to entry into care. The most dangerous time limits suggested by various advisers is 6 months, which is presumably drawn from the legislation. However, anyone relying on that time limit is taking a very big risk in presuming this time limit will be acceptable to the local authority. PLANNING IN ADVANCEIf planning is done well in advance then the various remedies and anti avoidance provisions available to the local authority can be avoided. The question is simply whether the measures taken ensure that assets are not brought within the financial assessment on entry into care. Until the first death the family home carries a “disregard” status, therefore any planning undertaken while both spouses are alive is even more likely to be secure from local authority attack. If a husband and wife undertake long term planning while both are alive, their planning should usually be successful. RISKSComment was made earlier about the possible folly in gifting the home to the children. The risks are immense:
The trust strategy described by this guide avoids these risks. INHERITANCE TAX (IHT) AND CAPITAL GAINS TAX (CGT)The trust strategy is entirely neutral for IHT and CGT.
Other benefits The Home Protection Plan offers the significant benefit that the home will no longer be subject to probate on death. The home can be sold or transferred by the trustees immediately after death with no probate formalities at all. This is potentially a significant advantage. In some cases, depending upon the other assets of the estate, it may mean that probate can potentially be dispensed with completely, with consequent time and cost savings. Solutions and partial solutions are available from less than £400, though the top of the range solution costs a little over £1,950 - but could save far more than that in probate fees, never mind the protection from creditors.
More information? - we have a free information pack, but we do not offer free advice! Other sites which may be of interest: Information for Financial Advisers? Allied Professional Will Writers Ltd Co reg: 5250176 2 Hankham Street Hankham Pevensey BN24 5BG 0800 298 5208 The Home Protection Plan – Asset Protection |
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