Living & Lifestyle

Wednesday, 08 June 2016

What to consider before gifting your home to your children

When you enter retirement you almost certainly won’t be immediately thinking about your long-term care needs. Hopefully you’re thinking more about your next cruise or how to fit all that golfing around seeing your grandchildren. But when you do start planning for the future, one thing that might spring to mind is whether you should sign your house over to your adult children.

House for saleThere are lots of reasons this might seem like an attractive idea, ranging from concerns about inheritance tax to a simple desire to give them a boost onto the housing ladder. But many people question whether they can sign ownership of their home over to their children in order to avoid becoming responsible for paying care home fees.

Care home fees can be very high and it’s understandable that many retired people want to dispose of their assets in a way that benefits their children and avoids swallowing up everything they’ve worked towards.

But what do you need to know before considering it?

 

1.       When will you be asked to pay?

There’s a lot of debate about how much people should be responsible for paying for their personal care. At the present though, someone with cash or assets worth £23,250 in England and Northern Ireland (£26,250 in Scotland and £23,750 in Wales), or a high enough weekly income to cover the fees will have to pay for their own care.

So it might seem that the obvious solution is to gift your house to your children, so that the state will pick up the bill for care. But it’s not as clear cut as that.

 

2.       Financial assessment (and investigation)

You need to be aware that if you need residential care then the local authority will carry out a financial assessment - and that won’t just be about your current wealth. It will ask about any assets or wealth you’ve owned in the past, which is not something you can hide.

If the investigator decides that you have offloaded assets just so you can become eligible for funding then that is something called deliberate deprivation. And that doesn’t just include gifting assets to your loved ones; it can also mean selling them for less than the market value.

 

3.       So I can’t ever help my children?

You can absolutely help out your family and for many retired people that’s a real priority. You might want to help pay for grandchildren’s care, provide a leg-up onto the property ladder or simply just see your loved ones having fun spending money you’ve built up.

The local authority will look at a number of factors, including your motive, the amount given (was it just enough to get under the £23,250 cap, for example?) and the timing.

 

4.       What’s the worst they can do?

If you’re found to have purposefully offloaded assets then they can be factored into your financial assessment. That could mean your children have to try and hand back the asset, assuming they’ve not sold it, or that you find yourself liable for your care but without any way of paying for it.

Within the first six months, the council could claim the costs back from whomever you’ve made the gift to. If your children have, say, spent the money on school fees for your grandchildren then this could leave them facing serious embarrassment.

 

5.       So what do I do?

If you still want to make a gift to your children then you need to get financial advice; the earlier the better. It’s not impossible to help your loved ones and limit your care home fee liability, but it has to be managed in the right way, and avoiding fees shouldn’t be your main motivation.

Don’t do anything without taking advice and ensuring you fully understand the potential fallout. It’s not as simple as giving away your house and qualifying for subsidised care.

One option considered by some people is to rent out their home in order to provide an income for the fees, but also retaining the property so it can benefit your children one day. Others take out insurance policies that will cover care costs should they become necessary, but not everyone will qualify.

Other options include schemes such as ‘Homeshare’ where a younger person moves into your home in exchange for providing low level support like shopping, cleaning and cooking – which is obviously not suitable for everyone.

If you do decide to use your home in a new way, whether it’s selling it and renting it back, equity release or taking on a working lodger, it’s essential to talk to your insurer in case this affects your insurance. It might mean your policy needs to be tweaked or that you don’t need as much cover anymore – for example, if you don’t own your home, but you live there, you may not need buildings cover in your name, just contents.

Feel free to ring our insurance team to update your policy or discuss the implications of any decisions.

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