Most of us consider making gifts to family members with a view to keeping those assets ‘in the family’. Such assets may have only sentimental value or they may be worth considerable money – such as the family home or a share in a business.
Whilst it is important to have an up to date Will to gift assets after death, many people also consider lifetime planning, i.e.. making gifts during their lifetime.
There are a number of reasons why people choose to do this, including recognising the support someone has given you, avoiding administration delays on death or incapacity, or passing on assets to loved ones.
Once you have made a gift, there is no turning back. It is important that you spend time considering your financial security and other issues before transferring assets to anyone else.
You can simply gift assets to one or more individuals however, if one of the recipients of the gift subsequently dies, divorces or suffers financial difficulties, problems may well arise. As such, we would strongly recommend you look into the option of transferring assets to a trust rather than directly to children or other individuals.
One option is to transfer the assets (most commonly property) to two or more people who will hold these assets upon terms agreed by you in a formal deed.
Terms included within the Trust Deed might state that although a property is held for your children, the property cannot be sold whilst you or certain nominated people (for example, your partner) continue to live there or perhaps that the property can be sold at any time with a view to buying a more suitable replacement property which would also then be held on the same terms.
This would offer you a degree of protection whilst ensuring that your children ultimately benefit.
Something else worth bearing in mind when setting up these arrangements is that there are likely to be tax implications, so it is important to take advice before making gifts or setting up any trust.
Long term view – paying for care
One risk that you must consider when transferring any asset is what will happen if you need to pay for your long term care in the future. Recent press coverage has highlighted this issue, including the complicated and changing rules surrounding the qualifying amount of capital savings for care home fees.
If you fall below the required criteria for the NHS to award you with fully funded care, then your assets will be assessed to see if you are able to fund your own care.
The rules are complicated however most people who have more than £23,250 in assets, including their home, have to meet the full cost of care. The threshold differs slightly in Wales, and in Scotland care home residents are able to access free personal care.
If you own a property the value of that property may be included in your financial assessment.
What if you need care and you have given assets away?
If you have already given assets to your children, or you have transferred assets into a family trust, then the value of those assets should not be included in your financial assessment.
However, if the Local Authority can show that the assets were transferred to avoid paying for your care then it is possible for them to still include the value of those assets in your financial assessment as what is called ‘notional capital’. It may even be possible for the Local Authority to send the bill for care to the person who has received the transferred assets. It is therefore important to take advice on the risks before making any transfer.
Also bear in mind that the care provided by the Local Authority might not be the standard you would choose. If you give all your assets away you might not have a choice!
A carefully drafted and up to date Will
If you don’t feel comfortable about transferring your assets during your lifetime but you still want to protect those assets in the future then you should consider reviewing your Will.
There are easy to understand and effective ways of protecting your assets for your family by making provisions in your Will. If you already have a Will, you should review it regularly, particularly if there are any changes in your personal or financial circumstances; for example, if you are getting married, divorced, moving house, or having children.
The majority of people usually want to leave their assets to their partner outright on their death. By doing this you put your assets at risk should that partner have financial difficulties, enter into another relationship or need care in the future.
If you want to be certain that your assets will pass down to specific individuals in the future (e.g. your children) then you may wish to consider leaving your assets to them instead however this could leave your partner financially vulnerable. It could also result in your partner (or a third party on their behalf) making a claim against your estate for further financial provision. As a result we would usually recommend a family trust to help to reduce these risks.