Is giving away your home to avoid care fees a good idea?
12 October 2014
If you do, you are not alone. Concern about losing their home to pay for care fees is prompting some people to give away legal ownership of the home to adult children without understanding all the ramifications.
If the local authority can prove that the purpose of the transfer is to avoid recovery of care costs, they can apply to court to undo the gift and assess your finances as though you still own the house, even though it is no longer in your name.
Another risk involved in giving away your home is that you might be left with insufficient funds of your own and have to rely on your children to help pay for the care home of your choice.
Fortunately, there are alternatives to signing over your home to your children:
Life interest trust in your will
This is best explained using an example. Mr and Mrs Smith owned their house together. They made wills leaving a ‘life interest’ in their half share of the house to each other. The ultimate beneficiaries
would be their two children.
When Mr Smith died, Mrs Smith was entitled to live in the house for the rest of her life. In later years, when she needed to move into a care home the house was sold. Whilst Mrs Smith’s share of the house was required to pay for her care, the half that had been protected by Mr Smith in the life interest trust could be invested and safeguarded for their children. The local authority was unable to touch 50 per cent of the value of the property.
Life interest trusts in your lifetime
It is sometimes possible to protect the entire value of your home by setting up a life interest trust during your lifetime and making a gift of your home to the trust.
This method ensures you never become homeless or have to depend on your children for financial assistance.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.