Legal Estate Planning

March/April 2010 - NEWSLETTER A HOPEFULLY INFORMATIVE, MOSTLY SERIOUS, BUT SOMETIMES PECULIAR UPDATE ON SUCCESSION PLANNING. Welcome to this month's edition of WLEP news, slightly extended! It occurs to me that with all of the major political parties chasing each other to find more clever and expensive ways to extract charges for care home fees, this may be a good time to revisit ways to protect or mitigate the effects of not paying due regard to the possibilities of care home fees. Of course, we don't know what the actual levies will be, and after the election result how they will be applied, but you can be sure that the costs of not protecting important assets from assessment will be severe. There will be attacks on those of your clients who are vulnerable. Now would be a good time to review their legal estate planning arrangements. The first thing to remember is that 1 in 4 of us will require some form of long term care in later life; and 1 in 5 will suffer from some form of dementia. This is potentially a severe drain on our clients' assets. With annual Care Home fees often of the order of £20,000 a year, assets will be drained in very short order indeed! There are methods by which we can do something about this, but the key is, as you will find, to take action early enough. There are several ways to achieve this: 1. The simplest way is where a couple own the house jointly. The ownership is altered to 'Tenants-in-Common', where each party owns a discreet share and a Mirror Will written passing the benefits on death to a third party, usually the children. The one of the couple needing residential care cannot have the half-share assessed as an asset as there is a co-owner in residence in the house. Should either of the couple die, their half's ownership passes to the children. The Local Authority would have difficulty assessing a property only partially owned, because the joint owner could not be forced to sell. 2. Equity Release. This process involves 'selling' the property, either partially or wholly, to a lender such as an Insurance Company, who will provide a cash sum in return, repayable on death. This will divide the ownership of the property, but will increase cash assets, so may still attract a Local Authority assessment. 3. Gift the property to the children. This method has several difficulties. There are income tax implications, for both the owner and the recipient and Inheritance Tax implications too. From a purely legal point of view, it gives the previous donating owner no automatic right to reside and depending on when the event occurs, may lead to a charge of deprivation. 4. A Lifetime Trust. This would pass ownership of the property, or other assets, into a Trust with right to reside, and would remove the property from Local Authority assessment. When the donor dies, the Trust would mature and the benefits pass to the beneficiaries. It is, however a relatively expensive process to set up compared to some others and would not suit everybody. This may be one of the better instruments to consider if the client is the sole owner of the property, as this would render the house liable for assessment by the Local Authority should the client need residential care. There are strict rules for assessment, however, that need to be considered when calculating the best method. There are also cost implications, however, if we can prevent the value of a house, and possibly other investments being slowly haemorrhaged away from our clients' estates then it would be money extremely well spent! Initial starting point At some point it will be recognised either by the person themselves, by members of the family or friends that the individual has suffered an illness which may require the support services of the Local Authority or the Health Service. This might be a recognition the client has suffered a stroke, is becoming excessively forgetful, or any manner of conditions for which the client requires assistance to cope. At this point the person may enter the care system. The starting point is that a Local Authority has a statutory duty to provide appropriate residential accommodation (National Assistance Act 1948), where that person does not have care available to them from other sources. This is regardless of the value of assets owned by the person entering care. The CRAG test The "bible" used by Social Services to determine amongst other things the charges a resident will need to pay is called the Charging for Residential Accommodation Guide (more commonly known as the CRAG rules). This states that it would be unreasonable to decide that the resident had deliberately deprived themselves of an asset that could have been used to fund their care if at the time of the disposal of the asset the individual was fit and healthy and could not have foreseen the need to move into residential accommodation. So, in other words, the key points are that the act of deliberate deprivation is not the issue; the central issue is whether the disposal can be proved to be as a result of a foreseeable need of care. In practical terms it is often argued that a Local Authority will consider whether at the time of the disposal of the asset there was formal knowledge of a condition which would render the individual needing care in the future (such as a doctors records), and whether a social worker had become involved. For most clients there is no problem since they will be setting this Trust up at a point when there is no need for care and they are fit and healthy. HASSASSA Regulations Even if the client fails the CRAG test (i.e. the Local Authority can prove the disposal of the asset was as a result of a foreseeable need of care) the situation is not beyond recovery. The Health & Social Services and Social Security Adjudication Act (1983) only allows the Local Authority to recover assets which have disposed of within 6 months of needing care. For example, if the person disposed of the asset at 5 months AND WAS fit and healthy AND had no foreseeable need of care at the time of disposal, then the Local Authority could not recover the asset. However, if an asset was disposed 5 months from going into care AND the individual WAS NOT fit and healthy AND the Local Authority could prove deliberate deprivation due to a foreseeable need of care they could recover that asset and use it to fund the residents' care. However, if the asset was disposed of say 7 months (or even 6 months and 1 day) from going into care, even if the Local Authority could prove the individual failed the CRAG test they could NOT recover the asset, but can only use the assets personally owned at the time of entering care and being financially assessed. Although the Local Authority cannot go after such assets they can apply what are known as notional capital rules. These state that the care fees thresholds are borne by the assets disposed of, thus allowing the capital owned by the resident to be completely exhausted to pay for care, rather than being taken down to the lower care threshold. Insolvency Act 1986 Local Authorities have been known to attempt to overturn property transfers using provisions in the Insolvency Act 1986, as no time limit then applies. They claim that the transfer is an attempt to defraud future creditors, ie themselves for care fees. The standard of proof required is higher than with the HASSASSA Regulations and, if this is suggested by a Local Authority then legal advice should be sought urgently from WLEP, as any attempt to overturn a transfer under these regulations should be strongly resisted. Some issues for your clients to consider. Your parents are getting older: will you help them plan their estate? Watching our parents get older can be difficult. Our parents are the ones who made sure we were safe and secure, who advised us and who we looked up to. They have always been there for us. As we become adults and parents ourselves we can see our parents are ageing. Frequently the roles and responsibilities change to the extent that the child effectively takes on the job of guardian of their parents. It may become obvious that our parents need help and advice to plan their finances and in preparing their estate. They may need to be encouraged to seek out professional advice to help them sort out their affairs properly. It may be difficult and even uncomfortable to embark on such a discussion especially as it involves acknowledging the 'potential' of dying. There is the risk that it will look like the child is trying to manipulate the distribution of the estate. Nothing changes the fact that is a very important conversation to have. Estate planning really must be completed sooner rather than later before your parents reach a point where they are unable to effectively plan by themselves. Sometimes Alzheimer's disease or dementia can rob them of mental abilities, and accidents can bring about incapacitation. A Lasting Power of Attorney can be established for each parent so that their affairs, both financial and potentially medical, can be managed in their interests and the interests of the family, should they lose capacity. Any good estate planning must include Wills. The Wills serve to establish both the distribution of the assets in the estate and who gets to do it as nominated executors. Having well drafted Wills in place will also help prevent any additional problems between family members at a time when they will be dealing with the aftermath of the bereavement. A difficult discussion to initiate but careful planning will be contributing to your parents peace of mind which in turn will make their remaining years more fulfilling. It really does make sense for you to encourage them to look for estate planning advice while they are still in a position to do something about it. Affordable peace of mind for people from all walks of life and for those not wanting the cost of a high street solicitor. Call 0161 486 0653 For light relief, some stories only tenuously related to estate planning! A few years ago in California there was a raging brush fire. Once the fire was extinguished, the firefighters began the process of cleaning up. In the middle of where the fire had been burning, they found a dead man wearing a scuba tank and wet suit. At first the firefighters were baffled as to why a man would be out in the middle of the countryside wearing full scuba gear. Upon further examination, it was determined that the man died from the impact with the ground and not the fire. As best as anyone can determine, this man was scuba diving off the coast of California and was accidentally picked up by one of the firefighting aircraft when it was refilling its water tanks offshore! A 67 year old retired labourer, John Whiting, went to Durham Magistrates' Court yesterday to testify he was alive. `Are you dead?' he was asked. `I am not,' Mr Whiting replied. - Daily Mail For months 80 year old Bert Williams had promised himself the first drink at a new club being built near his home at Doncaster. Unfortunately, a few weeks before the club was opened he died. When the club was completed, his widow, Mrs Edith Williams, took a pint of beer in a lemonade bottle - the first drawn at the club - to where her husband is buried. She then poured it over his grave to fulfil Bert's promise. - News Chronicle, quoted in New Statesman. PC's FALSE TEETH MADE JP WONDER - The charge sheet read `assaulting a police officer and wilfully damaging the constable's upper dentures'. But the point that puzzled the magistrate at Greenwich was how a man, who admitted cutting the policeman in the mouth, could have known he was wearing dentures. And, said the magistrate, if the man did not know about the constable's dentures, how could he wilfully damage them? - Daily Mail Hitting on the novel idea that he could end his wife's incessant nagging by giving her a good scare, Hungarian Jake Fen built an elaborate harness to make it look as if he had hanged himself. When his wife came home and saw him, she fainted. Hearing a disturbance, a neighbour came over and, finding what she thought were two corpses, seized the opportunity to loot the place. As she was leaving the room, her arms laden, the outraged and suspended Mr. Fen kicked her stoutly in the backside. This so surprised the lady that she dropped dead of a heart attack. Happily, Mr. Fen was acquitted of manslaughter, and he and his wife were reconciled. In 1983, a Mrs. Carson of Lake Kushaqua, NY was laid out in her coffin, presumed dead of heart disease. As mourners watched, she suddenly sat up. Her daughter dropped dead of fright. Have a good month. It's nearly Summer! Kindest regards Martin Wollaston Legal Estate Planning Specialist Martin Wollaston AffSWW, AIPW Wollaston Legal Estate Planning 62c Gillbent Road Cheadle Hulme Cheshire SK8 6NB Tel: 0161 486 0653 Mobile: 07812 463047 www.aps-legal.co.uk/martin.wollaston martin.wollaston@aps-legal.co.uk Martin Wollaston of Wollaston Legal Estate Planning is a Member of the Chartered Insurance Institute & Personal Finance Society & an independent Associate of APS Legal & Associates, APS Assured Properties Spain & EuroPrestige Properties (Spain), who provide compliance, document writing and technical support. Wollaston Legal Estate Planning is fully professional indemnity insured. Regulated by the Institute of Professional Willwriters Registered under the Data Protection Act 1984 and HMRC for provision of Tax Advice