Why you should consider a liferent trust
In recent years there has been a trend that suggests putting your house into a family protection trust is a clever way to avoid future care costs. Whilst, on the surface, this seems like a sensible way forward, there are potential pitfalls that you and your family may need to face.
The risks of putting your house into a trust
If you need residential care, the local authority will conduct an assessment to decide if you will be asked to pay for or contribute towards your care costs. The local authority will seek information about your assets to conduct their assessment of needs. They will ask about the house where you have most recently lived. If you do not own that house, they will ask who owns it and whether you owned it at any time in the past. If you did previously own the house, they will ask you when and how you disposed of it. If your house has been transferred into a Trust, they may consider this amounts to a deprivation of assets. If they reach that conclusion, they may decline making payment or contributing towards your care costs.
If you or your family decide to fight the local authority, it will take time and cost considerable sums of money. You would need to raise an action for Judicial Review of the council’s decision or to make a complaint to the Scottish Public Services Ombudsman. Importantly, there is no guarantee of success!
Is there an alternative to putting your house into a Trust?
If you are married, in a civil partnership or cohabiting with someone and the title to your home in is joint names you have options. This will involve checking the structure of the title and then making a Will that contains a liferent trust.
Stage one is a check on the title of the house to find out if it contains a survivorship destination. A survivorship destination means that should one of the parties die, the title to the property automatically passes to the survivor. If you decide to use a liferent trust, you need to change that so that each party can deal with their half share of the ownership of the house. This means that each spouse or partner owns a half share in the house.
If the title does not contain a survivorship destination, then we can move straight on to stage two – drawing up a Will containing a liferent trust.
What is a liferent trust?
Stage two involves the parties each making their Will containing a liferent trust. This works in a way that when the first of the couple dies, rather than their share in the house passing to their surviving spouse or partner, the share of the deceased is held in trust until their partner dies. Until the death of the second partner, that partner will enjoy a liferent in the deceased’s spouse or partner’s share in the property and ownership of their own share in the property until they die. Once the surviving spouse or partner dies, the ultimate beneficiaries – usually the children – will inherit the house.
Are there any other benefits of having a liferent trust?
In addition to allowing the surviving spouse or partner to remain living in the house there is an additional benefit should the surviving spouse or partner need long-term care. When the local authority conducts its assessment of capital of the surviving spouse or partner, they will only be assessed on the one half of the value of the house that they own. However, because of the liferent trust, they have been able to continue living in the house. Whilst this will not protect the full value of the property it does secure the protection of the half share held in the liferent trust.
The risks and costs associated with transferring assets into a discretionary trust are removed when you create a liferent trust. In addition, the annual costs of running a family protection trust or any costs associated with resignation and assumption of trustees are eliminated.
This is a complex area of law. We are happy to meet with clients to explain the options and make recommendations. If you are thinking about transferring assets into a trust but are looking for options, or simply wish to reduce your exposure to potential care costs, please contact us.