Solicitors in the AMD private client department are asked from time to time to advise on whether it is a good idea for parents of adult children to transfer their home to the names of their children. Many couples are concerned about losing their hard-earned savings in meeting the costs of their future care. Others are worried about Inheritance Tax, particularly as inflating house prices push families towards or past the Inheritance Tax threshold.
Transferring your home to your children is a high-risk and potentially counter-productive move however. You need to be aware in particular that, as owners of the property, your children may have the right to occupy your home or even to sell it.
Divorce and bankruptcy
While your children’s lives might currently seem to be balanced and stable, this might change in the future. Should your child become caught up in divorce proceedings, for example, their interest in the house could be brought into account in determining the financial settlement on the divorce. If a child became bankrupt, their interest in the house could be taken into account in establishing the assets available to meet the claims of the creditors. Having an interest in the property might affect their entitlement to means-tested benefits, should they ever need to claim these.
Where a house is given away subject to the right of a parent to remain living in the property, this can create complex tax issues. If a parent continues to occupy the house, the value of the property will in some circumstances form part of their estate for Inheritance Tax purposes. (This is called a ‘gift with reservation of benefit’). In some situations a child may in addition become liable to capital gains tax on the increase in value of the property from the time of transfer to the time of a sale. Specialist advice tailored to your particular circumstances is essential.
As tax law changes over time the effect of a gift might in future be very different from that which was originally anticipated. Oh for a crystal ball!
Costs of care
Should you at any point apply for local authority funding to meet the costs of your care in a care home, the local authority will assess the contribution you should make towards the fees. The local authority will, as part of the assessment, consider whether you have given away any assets with the aim of reducing the capital which is available to be used towards the fees. If you have given your home to your children it is likely that the value of the property will be added back in for the purposes of the calculation, so that your contribution to the fees will be assessed as if you had not given the property away.
Transferring your home to your children might seem to be a clever solution to a number of problems. However the implications are complex and taking expert advice on the many issues which can arise is essential.
AMD’s private client team
AMD’s team of experienced private client solicitors and practitioners includes full members of the Society of Trust and Estate Practitioners, the leading professional body in this field. We offer a free initial consultation for new clients.
For advice on administration of estates, trusts, wills, powers of attorney and all private client issues, contact Florence Pearce and the other members of the Probate team on 0117 9621205, email firstname.lastname@example.org or call in at our Henleaze office at 100 Henleaze Road.