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Care fees can be expensive, particularly if you’re not prepared for how much they’ll be and what assets they’ll take into account.
A Property Protector, Pension Protector and Savings Protector are all ways to prevent the bundling up of assets and stop the inheritance left by one party being used to fund the care fees of the other.
Many people wish to leave property, savings and pensions to their spouse or partner with the expectation that any unused funds will pass to their children on their partner’s subsequent death. If, however, those funds have been exhausted covering the cost of a partner’s care fees, there won’t be an inheritance left for the children.
You’re not obliged to fund the care fees of your partner with assets you own. However, if you leave everything to your partner unconditionally, those assets are no longer yours and will be taken as your partner’s assets when a financial assessment is carried out for care fees.
However, there are ways to protect your pensions, savings and property through protector trusts.
The Property Protector Trust
This is essentially a Will Trust, which is a trust within your Will that’s only activated on your death. It allows you to put your assets in trust on death to avoid them being used to fund somebody else’s care. This is important to stop your children being disinherited because your assets have been used to fund your partner’s care.
When registering a property with the land registry, there are two methods of joint ownership. Jointly and Severally is where both parties own all the house. On death the whole house automatically passes to the surviving partner and does not form part of the deceased’s estate. This is the most common form of ownership for couples.
Alternatively, Tenants in Common allows a defined split of ownership to be created, normally 50/50. On death, each party can direct where they would like their half to go using their Will.
Different clauses are used when preparing the deeds to identify the type of ownership and this can be changed. The legal process of converting from Jointly and Severally to Tenants in Common is called Severance of Tenancy.
In itself, simply converting property ownership to Tenants in Common does not provide any benefit. The protection comes from the Will directing the ownership of the deceased persons share into a Will trust. As a Will trust is a trust contained within your Will, which is only activated on your death, you still fully own your property outright during your lifetime.
The surviving spouse continues to own their 50% of the property but also enjoys a lifetime interest in the other 50%. This is a legal entitlement to live in the home until they die or voluntarily leave. They may also sell the property and purchase a more suitable one if they choose. In the case of a downsize, 50% of any equity released as part of the downsize would remain in trust.
Once your partner dies, the money in trust is still there for your children to inherit, even if they have had to go into care. Only their half of the property would have been used to fund care fees.
The Savings Protector Trust
Many people wish to leave savings and pensions to their spouse or partner on death, with the expectation that any unused funds will pass to their children following their partner’s subsequent death, but if these funds have been left unconditionally and used to fund care, there won’t be anything left for the children to inherit.
A savings protector is a Will trust that allows you to put any savings owned solely by yourself into a trust on your death.
You can name your spouse or partner in the trust to give them a lifetime interest. For savings, this means they automatically receive any interest or income from these savings for as long as they live.
Because they do not directly own the capital, it cannot be considered as part of a financial assessment by the Local Authority to cover the cost of your partner’s care.
When your partner dies, their lifetime interest ends and the savings in the trust pass to the remaining named beneficiaries, normally your children.
But, while your partner’s alive they may request lump sums from the trust, either as an absolute gift or as a loan to be repaid from their estate when they die.
The Pension Protector Trust
Many Defined Contribution style pensions and Drawdown plans pay the remaining funds as a lump sum to your named beneficiary on your death. If that’s your partner, who then needs a financial assessment for care fees, those funds will be taken into account.
A Pension Protector is a trust you can direct your pension lump sum payment into when you die. The trust grants your spouse or partner a lifetime interest, which means they benefit from any interest or income the funds produce and can request lump sum payments from the trust as either an absolute gift or a loan to be repaid from their estate on death.
On the death of your partner or spouse their lifetime interest ceases, and any remaining funds will pass to the ultimate beneficiaries, normally your children.
If a financial assessment is required to pay for care fees, your trust money is not taken into account as your partner does not directly own it.
A pension protector can also receive life insurance payments from a Defined Benefit pension scheme.
If you’d like to know more about whether a protector trust is right for you and your assets or would like to know how at-risk your assets are, give us a ring on 01642 42 45 73 and we’ll chat through your options.
Please note: Tax and estate planning services are not regulated by the Financial Conduct Authority.