In recent years, many have considered placing their homes into family protection trusts to avoid future care costs. While this may seem prudent, it can lead to unforeseen challenges for you and your loved ones. The likelihood of such a trust failing is quite high, and there are several pros and cons to consider.
Why Putting Your House into a Trust Might Backfire
If you need residential care, your local authority will conduct a financial assessment to work out whether you need to pay for or contribute towards your long-term care costs. They will inquire about your assets, particularly the family home where you most recently lived. If you no longer own that house, they will ask who does. They will want to know when and how you disposed of it. Should you have transferred your house into a discretionary trust, they might view this as a deliberate deprivation of assets. Consequently, they may refuse to pay for or contribute to your care costs, as outlined in the. Challenging the local authority’s decision can be time-consuming and expensive. You would need to initiate a Judicial Review of the council’s decision or lodge a complaint with the Scottish Public Services Ombudsman. It’s crucial to note that success is not guaranteed in such cases.
An Alternative to Trust-Based Property Protection
For married couples, civil partners, or cohabitants who jointly own their home in joint names there is another option. This involve examining the property’s title structure and drawing up a Will containing a liferent clause. The first step is to check if the property title includes a survivorship destination. This provision automatically transfers ownership to the surviving partner upon one party’s death. If you wish to use a liferent trust, you’ll need to modify this arrangement by evacuating the special destination so that each party can manage their share of the property ownership. If the title does not have a survivorship destination, you can proceed directly to the second stage – drafting a will that incorporates a life interest in property clause.
Understanding Liferent Trust Wills
This second stage involves both parties creating Wills that include liferent trusts. When one partner dies, instead of their share in the house passing directly to the surviving spouse or partner, it’s held in a trust until the second partner’s death. The surviving partner enjoys a liferent in the deceased’s share of the property while retaining ownership of their own share until they pass away. Upon the surviving partner’s death, the ultimate beneficiaries – typically the children – inherit the house as the ultimate destination.
Additional Advantages of Liferent Trust Wills
Beyond allowing the surviving spouse or partner to continue living in the house, a liferent trust Will offers another significant benefit if long-term care becomes necessary. When the local authority assesses the surviving partner’s capital value, they will only consider half the house’s value – the portion the survivor owns outright.
Liferent trust wills eliminate the risks and costs associated with transferring assets into a discretionary trust. Moreover, they remove the annual expenses of operating a protected property trust in Scotland and any costs linked to changes in trustees. It is also important to consider the costs of putting your house into a discretionary trust, such as potential income tax, capital gains tax, and inheritance tax implications, as well as the need for HMRC registration.
Wills and Succession specialist solicitors in Dunfemline, Fife
This area of Scottish succession law is intricate, and it is essential to seek professional advice. We help and advise clients on liferent trusts in Dunfermline, Fife and across Scotland. We’re happy to meet with clients to explain the options and provide tailored recommendations. Simple get in touch with us to arrange an appointment.
