Retirement is the reward for years of hard work and is a time to be enjoyed with family and loved ones.
While this new chapter brings with it many exciting new adventures, retirees must also pay close attention to their estate and ensure their planning considers care home fees and the potential benefits of liferents.
Although care homes may feel far away from those newly retired, ensuring these possible eventualities are planned for will help you and those close to you enjoy your retirement to the fullest.
For many, children and grandchildren are top of the priority list when considering the legacy they will leave behind. Retirement often prompts parents to re-examine their estate planning, bringing into focus the need to provide for their family but also ensure they can still live comfortably. Property, savings and investments typically will be enough for the next generation to benefit, but growing older means different costs, including care home fees, become a key part of estate planning.
While most are in good health at the beginning of their retirement and it is impossible to know what is ahead, residential care is a possibility for many.
With care home fees in Scotland ranging from around £1,500 to £3,000 a week, it is understandable that many worry about the impact this expense will have on what they leave behind. If a married couple are both alive, their home is protected even if one of them is required to move into residential care. As their spouse is living in the house, it will be disregarded from a financial assessment. However, if both need to go into care one day or if a spouse passes away and the surviving spouse then needs to move into residential care, the financial protection granted on their home is questioned.
In these circumstances, where a house is left unoccupied, there is a real risk that care home fees could denude the lion’s share of the assets they have spent their lives building up.
Thankfully, these risks can be avoided. Having a will in place means far more than simply “who gets what when I pass away?”. A liferent will is a prudent way to protect assets for the benefit of a spouse or civil partner, and the next generation.
By putting in place liferent wills, couples grant a liferent of their estate to each other on the first death. Unlike some trust arrangements, spouses still own their respective shares of the house and other assets during their lives. When a spouse passes away, their share of the estate is held under trust for the benefit of the surviving spouse. This means nothing changes on a practical level for the surviving spouse, they continue to live in the house as normal, however, they would not inherit their spouse’s share of the house outright.
This fine detail means that if the surviving spouse goes into care at a later date, the deceased spouse’s share of the house is protected from being assessed to pay care home fees. While other assets owned personally by the surviving spouse, such as bank savings and investments may be used to fund care.
It is important to note that when the value of the surviving spouse’s assets falls below the current upper capital threshold of £35,000, they will no longer be considered ‘self-funding’. It is at this point that an individual is entitled to financial support from their local authority.
Liferent wills not only allow for assets to be financially protected but when coupled with other elements of long-term estate planning, provide families with the ability to handle care home fees on their own terms.
For example, Mr A dies, granting a liferent to his wife Mrs A. Many years later, Mrs A is required to move into residential care. Mr and Mrs A had appointed their children as trustees of the liferent, as Mrs A’s move to residential care has now brought an end to the liferent, their children have power, as trustees, to handle Mr A’s share of the house.
Their children also have Power of Attorney and when combined with being trustees of the liferent, they have power to rent or sell the house. The resulting money could be used to top up care home fees, providing their parent with a better quality of care.
Of course, nuclear families like the one described above are less common than they once were and if your family is different from this example, there could be additional advantages to a liferent will.
For blended families, a liferent will can allow a couple with children from previous relationships to ensure that all of their children are treated equally. The liferent provisions allow someone to set in stone who is entitled to their estate after the surviving spouse passes away, preventing that spouse from making changes in their own will to exclude stepchildren.
Mirrored liferent wills work well for any couple who jointly own property and live together, not only for those who are married. While the obvious examples are cohabiting couples or civil partners, siblings or friends in this situation could enjoy the same advantages in terms of care home fees and onward inheritance.
Liferent wills may not be suitable for everyone, including single, divorced or widowed people who solely own their home.
Where someone in this situation wants to protect their assets or cater for a non-traditional family, alternative arrangements like lifetime family trusts may be more suitable. This involves gifting assets into a trust during life. The rules around gifting to trusts are complex and anyone considering this type of planning should always seek professional advice.
Shepherd and Wedderburn’s team are highly knowledgeable in various trust and succession planning options. Our private wealth and tax team is here to help you make the right choices for you and your family.
This article was co-authored by Trainee Alanna Buchan.