Many of us take comfort from the thought that our assets will pass to our children when we die. However, Scotland has an aging population and that means the number of older people requiring long term care is going up. If you were to require residential care, some your assets could be expected to be sold to contribute to your care costs. Unless you take steps to plan for the future, it is an uncomfortable truth that what you want to happen might not be the outcome.
The ‘Simple Will’ Approach
Most of our clients start from the position that if they die, they want their assets to go to their spouse and thereafter their children. Here’s an example:
Mr and Mrs Smith are a couple who jointly own their own home and have one daughter who they want to inherit everything when they both die. They each have individual savings and some joint savings. Mrs Smith dies with a Will in place and his half share of the house, joint savings and other assets that make up his estate pass to Mr Smith. If he didn’t have a Will, things would be more complicated and take more time, but usually the outcome would be the same. This is all, of course, subject to the legal rights of the children.
Now at some later stage, Mr Smith requires long term residential care. The entire value of his assets (which have doubled with the inheritance from his wife) are taken into account when calculating care costs.
This ‘simple will’ approach is a starting point, but when you have a solicitor prepare your will rather than get one ‘off the shelf’, the solicitor can give you more options that may be of interest.
The ‘Trust Will’ Approach
A Trust Will sets out your wishes as you would expect but structured in a way that can assist protect property assets. Using the same example as above, here’s what would happen with Mr and Mrs Smith. Let’s pick up the example immediately after Mr Smith has passed away. Under a Trust Will, his half share in the house would be put into a trust. His wife would be given a ‘liferent’ which would allow her to live in the property rent free throughout her life. It would also be possible for her to move to a different property, but she would only own half of it, with the trust owning the other half. Mr Smith’s savings and investments (his ‘movable estate’) could also be held in Trust with Mrs Smith receiving interest and being advanced money if required.
In this example, if Mr Smith required long term residential care, he would have half as many assets to be used to calculate his contribution towards care costs with a ‘Trust Will’ than he would with a ‘Simple Will’. It would also be very difficult for the local authority to force a sale of the house as Mr Smith only owns one half of it.
The Final Estate
When Mr Smith eventually dies, his half of the estate will be wound up, as will the ‘Trust’ element of Mrs Smith’s estate, with their daughter the only beneficiary. Under a ‘Trust’ Will, the daughter will received significantly more than she would have done under a ‘simple Will’.
Conclusion
In our example, no assets are transferred during lifetime. No control over the assets is given away. The council can’t accuse Mr and Mrs Smith of trying to avoid care costs.
A Trust Will is one of the options up for discussion. You could also transfer the property to your kids (which comes with its own risks!), put your assets into a discretionary Trust, take out a lifetime mortgage to realise some of the cash locked up in the property, or take out an insurance policy to meet your care costs.
It’s important to note that this is an example scenario designed to get you thinking and, importantly, planning. Everybody, every situation and every Will is, and should be, unique, which is why having a solicitor prepare one ensures something tailor made to your circumstances.
If you’ve any questions (and we hope you do!), get in touch and let’s have a conversation. Fill in the form on this page and select ‘private client’ from the drop down menu.