Wills, Trusts & Estates News

Making gifts of assets - David Watters

There are several reasons someone (a donor) may wish to gift their assets to their children or other members of their family. Any type of property may be gifted, but the major asset of the vast majority of people is the matrimonial or family home.

A donor may wish to gift assets because they wish to save inheritance tax and administration costs on their death, or they may wish to avoid the need to sell assets to pay for care fees, or they may wish to be relieved of the burden of responsibility for a particular asset. Alternatively they may be thinking about saving both time and expense in applying for a court order from the Court of Protection in the event that they lose mental capacity to deal with the asset and there is no relevant power of attorney in place.

There are, however, several risks to gifting assets outright (particularly the family home) to children or other members of the family. If the person into whose name the property has been transferred (the donee) subsequently becomes embroiled in divorce or bankruptcy proceedings, any court order made against the donee could call for the property to be sold.

In such a scenario it is highly possible that the donor could lose their home. A problem also arises if the donee who now owns the property dies before the donor without making relevant provision in a will either gifting the property back to the donor or at least giving the donor a right to reside in the property. The consequence of not making the necessary provision in a will is that the home will become part of the donee's estate and pass in accordance with his/her will or in accordance with the intestacy rules. The result would be that the beneficiaries of the donee's estate could again force the donor to sell.

The value of the family home may still be taken into account for funding long term care as there are anti-avoidance measures in place in relation to means testing. If a person who has gifted his/her home subsequently needs to move into a nursing home but does not have the resources to pay for the care themselves because of the gift, the local authority may only pay for the basic level of care, leaving that person to rely on the financial support of others to enable them to move into a nursing home of their choice.

In gifting the family home, the donor may deprive themselves of opportunities to adapt to changing circumstances - for example by downsizing or releasing equity to pay for adaptations or care at home so the donor may be left with no option but to move into a care home.

There are also tax implications to gifting assets. There may be no inheritance tax saving if the donor continues to reside in the home. For example if the donor continues to reside in the property after gifting it to a child. There may be an inheritance tax liability if the donee dies before the donor or if the donor dies within seven years of making the gift. Capital Gains Tax (CGT) main residence exemption will be lost unless the donee lives in the property. There may be no automatic uplift to the market value for CGT purposes on the donor's death. Under the pre-owned asset rules, the donor may be subject to an income tax charge after the transfer.

Gifts of assets of joint donors bring special considerations. The same risks apply to gifts of assets by joint donors as with individuals. In addition, where either or both donors have children from previous relationships each donor should consider their obligations to those children. If the gift is a share in the family home by one of the donors to a third party, the donors should fully explore the implications for the potential survivor.

It is common for spouses, civil partners or co-habitees to contemplate a gift of the family home to avoid it being taken into account in relation to means testing for care home fees. However, there are circumstances when the share of the donor will not be taken into account where the other donor remains in the family home. The value of the family home will be disregarded in the following circumstances:

During a temporary stay in care.
If the family home is occupied by a spouse, civil partner, co-habitee or relative who is 60 years or over or is incapacitated.
If the family home is occupied by someone else and the local authority exercises its discretion.
For the first twelve weeks of a permanent stay in a care home.

Joint donors who wish to make cash gifts should consider whether the survivor will have sufficient funds to live on following the first death.

The survivor's expenses may increase due to living alone at the time as income is reduced because of lost pensions. This can occur whether the donors are married or co-habiting.

If the gift is to more than one donee such as multiple children, this situation greatly increases the problems and risk of divorce, bankruptcy or death of the donee particularly if the gift is of the family home

Many people are motivated at making a gift of the family home in order to protect their major asset. There is no foolproof way of avoiding the value of the family home being taken into account for means testing. Anti-avoidance provisions allow some gifts to be ignored by the authorities or set aside by the courts.

Local authorities are not allowed to take responsibility for a person who is an NHS responsibility. However the local authority must assess anyone who appears to it to be in need of community care services. On the results of the local authority's assessment it must decide whether there is need to provide community care services. If that is the case, the person in need of care is likely to be subject to the financial assessment.

If a person can afford to pay for a place in a care home, they can arrange this independently. However they should still have a needs assessment to consider all their care options and to see how much financial assistance would be available from the local authority. The assessment for need of care provision does not depend on the need for funding.

For people who cannot afford to pay the standard charge for their care, local authorities will make an assessment of their ability to pay. This is reviewed annually but reassessment can be requested at anytime.

If a local authority believes that an asset has been given away intentionally to claim means rested benefits, it may decide that the donor has notional capital of equivalent value to that of the asset given away.

A person will be particularly vulnerable if they are deemed to have notional capital since although the local authority is obliged to provide care it does not have to be in a residential home. In addition that person may not be entitled to financial assistance towards the fees. The local authority are still under an obligation to provide care, but the local authority could seek payment using debt recovery methods.

If the local authority's belief is that a person intended to transfer the asset to increase entitlement to financial assistance, it could impose a charge on the asset after it has been gifted or even recover the asset.

However, for a local authority to pursue a claim they would have to show what the donor's intentions was at the time of the gift. If a valid reason for the gift cannot be given, the court may conclude that the gift was made to avoid means testing.

However one way to establish the intention is the foreseeability or immediacy of the need of care. In other words, if the donor was fit and healthy at the time the gift was made and could not have foreseen the need for residential care, it would be unreasonable for the local authority to treat the gift as a deliberate self deprivation of assets for the purposes of avoiding residential care fees.

It can be seen therefore that making a gift of assets is not as straight forward as it initially seems. Anyone proposing to make a gift of any asset should obtain the necessary legal advice.

We have a dedicated Wills Trusts & Estates team here at Lees Solicitors and are happy to assist in such matters as asset gifting, wills, trusts, estate planning, probate and powers of attorney.

For more information please call our team on 0151 647 9381

David Watters

This article provides a summary of a recent case/change in law/news item. It is intended for general information purposes only and is not to be relied upon. It does not constitute legal advice and should not be treated under any circumstances as a substitute for legal advice. Lees Solicitors LLP does not accept any responsibility for any loss that may arise from reliance upon the information contained within this article. The copyright in this article is owned by Lees Solicitors LLP and permission must be sought before reproduction or publishing.

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