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Planning for Future Care Costs and Protecting Your Estate
Typical Planning Scenario for a Couple:
- The family home is jointly owned. On the first death, full ownership transfers to the surviving spouse or partner.
- If the surviving spouse or partner later requires residential care, the entire estate—including the family home—will be assessed to determine their ability to pay for that care, alongside other financial risks.
Where No Will Exists or Only Basic Wills (e.g., Mirror Wills) Are in Place, Your Estate May Be Exposed to the Following Risks:
- Care Fees
After the first death, if the surviving partner needs care, the full value of the estate, including the family home, is considered in local authority means testing. This can result in the forced sale of the property to fund care. - Marriage After Death (MAD)
If the surviving spouse or partner remarries, all assets inherited from the deceased could become part of the new marriage, potentially disinheriting the children from the first relationship. - Creditors or Bankruptcy
Should the surviving spouse or partner face financial difficulties or bankruptcy, the inherited estate is fully exposed and may be used to settle debts.
Additional Risks Arising on Second Death:
- Divorce
If your children or chosen beneficiaries later divorce, up to half of the inheritance intended for them could be lost in divorce proceedings. - Generational Inheritance Tax (IHT)
Assets left outright to beneficiaries increase the size of their estates, potentially exposing them to higher inheritance tax liabilities on their own deaths. - Future Care Costs of Beneficiaries
If beneficiaries require care in the future, inherited assets may be included in assessments, reducing what they are entitled to retain. - Creditor or Bankruptcy Claims
If any beneficiary is subject to legal or financial claims, the inheritance they receive outright is at risk.
Gap Planning’s Trust-Based Solution
To mitigate these risks and protect your estate for future generations, Gap Planning offers a strategic trust-based approach:
- On First Death
The deceased’s share of the family home and other assets is placed into a Family Trust established through their Will. This ensures that those assets are protected and ring-fenced from future threats. - Ongoing Use of the Home
The surviving spouse or partner retains full rights to live in the property and can move home if they choose, maintaining flexibility and security. - Care Fee Protection
In the event the surviving partner requires care, only their share of the property is assessed. According to Section 7.019 of the Care and Support Statutory Guidance (which replaced CRAG), a half share in a property is typically valued at nil for means testing purposes.
Benefits of Using a Family Trust:
- Protection from Care Costs
Assets held in trust do not form part of the beneficiaries’ own estates, so cannot be used to fund their future care. - Protection from Creditors or Bankruptcy
Trust assets are not considered personal assets of the beneficiary, so they are shielded from claims by creditors or during bankruptcy. - Mitigation of Future Inheritance Tax (IHT)
As the trust retains ownership of the assets, they are not included in the beneficiaries’ estates, helping to reduce their exposure to IHT. - Protection Against Marriage After Death (MAD)
Assets placed in trust on first death are not absorbed into a subsequent marriage and remain protected for the original intended beneficiaries. - Divorce Protection
Inheritance held in trust is generally excluded from financial settlements in divorce proceedings, preserving it for your children or chosen beneficiaries. - Residence Nil Rate Band (RNRB) Compatibility
Where lineal descendants (such as children or grandchildren) are named beneficiaries, the trust structure remains compliant with current legislation to qualify for the RNRB, maximising tax efficiency.
At Gap Planning, we specialise in estate protection strategies that not only provide peace of mind during your lifetime but also ensure that your legacy is preserved and passed on in the most secure and tax-efficient way possible.
Let us help you safeguard your estate—for your family’s future, not the state’s.