In an uncertain world,  the generation of “baby boomers” are likely to be more prosperous than their children.  It is now much harder for “millennials” to save for a deposit to buy a house with the rising cost of rents, childcare costs and tuition fees.

Many parents would like to ensure that as much of their wealth as possible is passed down to the next generation.  However, whilst they may own their own home, often their biggest asset, they have worries about balancing this with their own needs.  What happens if they need residential care?  Will their hard earned assets be used up in care home fees?

Sometimes, parents are tempted to consider transferring their home whilst they are alive to their children with a view to safeguarding this asset.  However, any dealings with the family home should only be taken after detailed advice.  There are several pitfalls:

1. This may not work for care fee planning as the local authority may treat this as deliberate deprivation of your assets depending on the circumstances. 
2. For inheritance tax purposes the value of the home will still be counted as part of your estate on death and liable to tax at 40%.
3. This can be bad news for CGT purposes as Main Residence Relief will not apply as the home owner is not in residence.
4. Worst of all, once the asset is given away, the parents have no control over the asset.  They cannot access any part of the value by way of equity release and risk losing their home if their children face financial or matrimonial difficulties.

What then can be done as far as the family home is concerned? 

For couples who own their home jointly, it is possible to make Property Fund Wills protecting a half share of the home after death for their chosen beneficiaries, usually their children.  Ownership of the property has to be on a tenancy in common basis which allows each one to leave their share under their will.  The first to die leaves their share to a trust whilst allowing the survivor to live in the house in their lifetime.  If the survivor needs care, only the survivor’s half share forms part of any assessment.    Where there are second marriages, this helps to protect funds for children of the first to die by his/her first marriage.  Where couples are not married, advice should be sought on the IHT rules applicable.

No one can predict the future but with careful planning some protection can be put in place .

For further information on setting up Property Fund Wills please telephone our Wills & Probate Department on 01625 538816.