Wills: Inheritance Tax (IHT) and Planning for Long Term Care. Changes announced by the Chancellor in the 2007 pre-budget report mean it is now easier for married couples and those in civil partnerships to utilise both IHT allowances. If the first "spouse" to die leaves all of their estate to the survivor, the survivor will now be able to leave up to £650,000.00 (tax year 2011/12) free of IHT by using their own allowance, and also any "unused" allowance of the spouse who died first. Until 2007, this could only have been achieved by preparing Wills incorporating a "Nil Rate Band Discretionary Trust".

For unmarried couples however, the situation remains as before, and prudent planning is needed within your Wills to avoid any unnecessary IHT, should the value of your combined assets exceed £325,000.00.

For the majority therefore, the problem of IHT has been eased by the recent changes. There remains though an issue of great concern to many– that being the possibility of their house and other assets having to be sold to pay for any future Long Term Care (LTC) needs. Consider the following:-Based on these figures, it is easy to see how the value of your estate could be lost in just a few years spent in residential care.

So what can be done to avoid this? Firstly, any couple, married or not, should own their house as Tenants in Common rather than as Joint Tenants. This will give to each owner a specific 50% interest in the house.There are then 2 options available in terms of possible protection:
  1. For a couple, whether married or not, and under the terms of their Wills, the first spouse/partner to die, will place their share of the house in a Trust, normally for the eventual benefit of their children. They will though, give to the surviving spouse/partner, the right to live in the house for the rest of their life. Should the survivor then require LTC, and they are assessed by the Local Authority as to the extent of their own assets, they will only be assessed as owning 50% of the house.

    These Wills (known as Property Protection Trust Wills) will guarantee that 50% of the value of the property can be protected from future LTC assessment BUT ONLY in the situation where it is the surviving spouse/partner requiring the LTC. If both spouses/partners require LTC, the Wills offer no protection whatsoever.

  2. The second option available to both single and married/cohabiting clients is to prepare Family Protection Trusts. Provided certain criteria are met, these Trusts, created during your lifetime, are able to protect assets up the value of your IHT allowance (£325,000 for a single client or £650,000 for married clients), from LTC assessment. The Trust is created using a nominal £10, and you are then able to transfer into your Trusts any assets that you wish to protect from future LTC assessment, such as your residential property and any other monetary assets. During your lifetime you are given unrestricted access to the Trust assets ensuring that if the funds are needed by you they can be accessed at any time.
Both of these options have the ability of saving many thousands of pounds in LTC fees, as well as preserving the IHT situation. The surviving spouse would still be able to use both IHT allowances on their subsequent death.

If you would like to find out further information about Wills, Inheritance Tax (IHT) or Planning for Long Term Care please contact your JS Law 'Moveplanner' who will be happy to assist you.