If you have retired, or are thinking about retiring, you may wish to more fully protect yourself and your family’s future inheritance.
You may have worked hard to create wealth, even if this wealth is in your home, so the last thing you want is for this wealth to be eroded by paying for nursing home fees or fees for carers.
So what measures can you put in place to ensure that your wealth is protected?
Will trusts and long-term care
Managing Partner Paul Jones, who heads JW Hink’s Lifestyle Services team, says setting up a will trust can help ring fence assets should a spouse die.
“Will trusts are mainly used by married couples and civil partners and are set up in conjunction with splitting ownership of the family home to ‘tenants in common’, so each partner has 50%,” said Paul.
“Rather than leaving this to each other, it is left to a trust, which comes into being on the death of the first partner.
“This allows assets to be ring-fences against potential fees should the partner go into long-term care.
“If the surviving spouse needs to move into residential care, only their share will be assessed by the local authority. The part owned in the trust is discounted, and as such is protected from care home costs.”
In order to protect wealth, individuals could also think about setting up lifetime trusts, also known as property protection trusts or asset protection trusts.
Unlike will trusts, lifetime trusts become active immediately and are a good way of protecting your assets as Paul explains.
“The idea of setting up a lifetime trust is that you gift your home to the trust, which allows you to carry on living in it,” he said.
“The raison d’être behind the move is that should you need to go into residential care in the future, you no longer own a house and can only be assessed on minimal assets.
“Individuals should be wary however that the local authority may regard this arrangement as ‘deliberate deprivation of assets’. If this is the case you could still be assessed as owning the property.
“However by placing property outside your estate, this could also reduce probate costs.”
Inheritance tax considerations
When making a trust, you should take into account the inheritance tax (IHT) liabilities that may come your way.
For example in setting up a lifetime trust, and gifting your house to the trust, you can attract IHT if it is worth more than the current nil-rate band (£325,000).
Paul Jones says individuals should be wary of the potential costs.
“Under IHT rules, those who transfer their property into a lifetime trust will face a 20% tax charge on the balance over £325,000, while the trustees will be required to submit tax returns to HM Revenue and Customs,” he said.
A will trust set up will also use up all of the first partner’s IHT allowance in a way that leaving everything to your partner doesn’t, as a widower has a lifetime allowance of £650,000.
Furthermore it could also create Capital Gains Tax liabilities for the trustees.
For more information how to protect your assets in retirement, contact JW Hinks Lifestyle services team now.