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  • Overview

    With an ageing population, many people are making the decision to look after their parents in their homes. Our clients had done just that, building a self-contained flat (or "granny annexe") for a parent in his 90s. We shall call him Bill (not his real name). As part of the deal, and in the interests of good Inheritance Tax planning, Bill had transferred almost all of his assets to our clients.

    Tom Bradfield updated our clients’ Wills and, as part of the exercise, was asked to advise how best to best to protect Bill (who now has almost no assets) in the event that the clients both died before him.

    The clients wanted to give Bill the right to live in their property for as long as he lived. Tom advised against this as it would amount to a life interest in a trust of the property, undermining all that good Inheritance Tax planning by effectively passing the property back to Bill. It is also necessary to take into account Bill’s possible future needs. The clients live in a lovely rural setting, but reduced mobility might make Bill more comfortable in a town. He might also need to move into private residential care. In either situation, it would be difficult to sell the property to raise the necessary funds. Matters would be even more complex if Bill had lost mental capacity, perhaps due to the natural process of ageing.

    A discretionary trust of the property is the most practical solution. The trustees would have the ability to allow Bill to live in the property, or sell it to raise money for downsizing and/or care fees. By allowing the residuary beneficiaries to benefit too, the trustees are also given the option of passing on some of the money before Bill’s death if he does not need it. The clients were helped to prepare a letter of wishes, setting out their desire for the trustees to use the property for Bill’s benefit. While the trustees would have reference to Bill, they would not need to take his instructions, so they could act even if he lost capacity. Trusts are subject to their own Inheritance Tax regime, but no charge would arise on the trust for ten years. It is most unlikely that Bill would survive for this long in view of his age, making the whole structure tax neutral (apart from any capital gains or stamp duty land tax if the trustees sold or bought a property).

    It is sensible to plan for all eventualities. Although Bill was not our client, we advised our clients to discuss with him putting in place Lasting Powers of Attorney. This would be of great benefit in the more likely scenario in which they increasingly have to manage Bill’s affairs for him.

  • Related Services

    Wills, Trusts & Tax Planning

    Our specialist lawyers provide high quality, intelligent advice that is comprehensive, considered and clear.

    Inheritance Tax advice

    Inheritance Tax can often be minimised with careful planning.

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Jargon Buster