IHT

[gt80]

Hello,

My parents have had mixed advice from different advisers as to their estate planning (IHT & care costs).
So I am just trying to get some neutral basic advise and clarity to help them out.

What what I was told:
Adviser 1 suggested setting up a trust for my sibling and I to actually own the estate to help minimise IHT and care costs. My parents seemed to think this adviser didn't think their estate was large enough for the adviser to care to follow up on the business.
Adviser 2 suggested not setting up a trust, but instead told them to split their wills and not pass on their half of the estate to each other but in fact to pass it straight to us, the two descendants. Adviser 2 didn't think a trust would work with regard to reducing the care costs, but splitting the will would, and would stop an primary home being sold to fund care.

The estate that I know of is roughly:
Primary residence £380k
two other UK rental properties £450k
one property in France £350k
one property in Cyprus £100k
possessions roughly £40k
savings, pensions and investments unknown

It seems neither of these advisers advised them on their foreign property either.

Parents are 73 and 69.

Any help, advise, clarity would be welcome.

Kind regards,
GT80

[AGoodman]

This is a complex estate and it is essential that your parents get (and pay for) advice from a solicitor who has the time to consider the alternatives. There are, for example, limits over what you can do with French and Cypriot properties and CGT could be a massive factor.

1. Any lifetime gift (outright or to trust) is liable to fail on the care costs side if the purpose of doing it is to avoid care costs. Numerous unregulated "advisers" are selling trust schemes of questionable efficacy.
2. There may be merits in leaving half shares to children but bear in mind the survivor will retain his other assets.
3. Bear in mind that if they give away all their assets to avoid contributions to state care costs, your parents are committing themselves to the care which can be covered by falling Govt funding. If it came to the point that they needed care, they might want to pay to get a nicer environment or more regular care at home.
4. Nursing homes are (I believe) still covered by the NHS.
5. It looks like your parents have numerous other assets that could be claimed before the family home. Giving any of them away could result in a serious CGT liability that would be avoidable if your parents retained them.

[maths]

Are you and/or your parents non-UK domiciled and/or non-UK resident?

[gt80]

@AGoodman, firstly many thanks for the information, right now I believe they are not considering any asset disposal unless it would be beneficial in the long term when taking into consideration current/future income Vs benefits in IHT and care costs.

1. Good to know that a trust is likely to fail the cost of care, and might incur large CGT.
2. What is to bear in mind that the survivor of the two parents will keep their assets?
3. It is their wish that they manage how much they spend and what services they pay for if one of them were to go into a home, they have heard many horror stories of estates being plundered for basic NHS care and not for any extra comfort.
4. NHS will go after your assets if your estate is valued over a certain amount I believe, and this is for basic care.
5. This is true and a good point re the CGT if giving away into a trust.

What methodology should I provide them with for finding advice from a good solicitor?

@maths, we are all UK tax domiciles.

Many thanks,
gt80

[AGoodman]

Best I can suggest is to find a member of STEP: https://www.step.org/step-directory

[AnthonyR]

1. Good to know that a trust is likely to fail the cost of care, and might incur large CGT.
Trusts will usually allow you to defer the CGT, but you lose the opportunity of a CGT uplift on their death. Putting all your assets into trust is likely to be seen as deliberate deprivation of capital and challenged by the local authorities, however, your parents have enough assets to place some into trust to bring them below the IHT threshold, but leave plenty in their estate if they need to go into care. However, note that gifts into trust or direct to individuals are only effective for IHT purposes after 7 years.

2. What is to bear in mind that the survivor of the two parents will keep their assets?
On the first death you can ringfence the deceased's assets in a lifetime trust to safeguard them from care fees, however, the survivor's assets are still exposed to care fees should they need it. Apart from placing some assets into trust there's little you can do to avoid this and care should be taken to consider how much should be left to cover care fees if needed to avoid a challenge by the local authority.

3. It is their wish that they manage how much they spend and what services they pay for if one of them were to go into a home, they have heard many horror stories of estates being plundered for basic NHS care and not for any extra comfort.
4. NHS will go after your assets if your estate is valued over a certain amount I believe, and this is for basic care.
The NHS does not cover care at all, it's not part of their remit, although they do cover nursing costs. It is the local authorities that arrange for care and if your parents assets exceed £23,250 they will have to pay for their care. At that point and bearing in mind your parents have substantial assets most families take the view that they'd rather pay a little bit more for a private care home than simply take what the local authority will give them (which will still not be cheap).

5. This is true and a good point re the CGT if giving away into a trust.
The CGT point only relates to direct gifts - if, for instance, your parents put one of the properties (or a share of the properties) into trust then you can defer the CGT. If they gift direct to you or other family members the CGT will crystallise.

The key thing to bear in mind is that your parents have significant assets of around £1.2m. This does meant there's a small IHT problem and if they need care they will pay for it. However, I'm sure you would want the best care that's available for your parents and also bear in mind cap on care fees being introduced next year:
https://www.bbc.co.uk/news/health-30922484

[gt80]

@AnthonyR, sorry for my slow response, but thank you very much for expanding on the the points, this is very helpful.
I will relay this information to my parents and have a discussion with them. From what you have said which makes the most sense to me out of all that I have been told, I will suggest to them your feedback and that they seek another opinion along these lines. Thanks again, gt80.