Clients often speak to us about planning for the future and how they can protect their assets – usually, their house – from being used to pay care fees. The number of people who need residential elderly care is much lower than people think. However, it is always important to consider your options when planning for your future. That is why, when clients discuss making a Will, we will look to address their concerns about future potential care costs. One element of future planning we can recommend is a liferent trust.
A liferent trust is used by couples and is included in a Will. When you make a Will, you can decide what happens with your assets. If you own a house jointly with your spouse or partner, you can include a lifetime trust to deal with your interest in the property. This allows your spouse or partner to continue to live in the property even though they don’t own the entire property.
We first need to take a step back and look at the title to the property. When the title is in joint names, you need to check whether it contains a survivorship destination. This means that on first death, the title to the property automatically transfers to the surviving spouse or partner. To use a liferent trust, you will need to change the structure of the title by removing the survivorship destination. We will deal with that for you.
When the title is held equally between the parties (with no survivorship destination) that means when one party dies, his or her heirs are entitled to inherit their share in the house. However, if the deceased has made a Will and included a liferent trust in favour of their spouse or partner, that means that the surviving spouse or partner is entitled to live in the house rent free until death.
This also means that ownership of the deceased’s half of the house can be transferred to the deceased’s heirs. However, they cannot sell or realise the asset or use that inheritance until the surviving spouse or partner dies.
The question of care fees often arises when we speak to clients about future planning. When you are assessed for care, your savings and assets are reviewed. When the title to a property is held in joint names, only a one-half share in the value of the property will be taken into account in the assessment of savings and assets.
When the first spouse or partner dies, when a liferent trust is employed, it means that the surviving spouse or partner retains his or her ownership of their own half of the house but has a liferent interest in the other half of the ownership. This means that they can continue to live in the house, but the ownership of the other half will transfer to the first deceased’s beneficiaries.
Liferent trusts can also be used when there are stepchildren involved. In “modern families”, there can be frequent discussions to ensure all children are dealt with equally. However, in the case of spouses or partners who have children from previous relationships, there is no guarantee that the children from the first to die will inherit anything when the surviving spouse or partner should die. The liferent trust means that the first deceased can leave his or her share in the house to his or her children but protect the surviving spouses or partner’s right to continue to live in the house,
This is a complex area of law, and we encourage our clients to discuss their needs with us in detail when they make a Will. By employing a liferent trust in a Will, there is the potential to avoid or reduce care home costs and to help direct the destination of the estate long after a death.