Help please - Tenants in Common

[dalesman]

I wonder if anyone can help me understand the implications of changing our ownership of the house to Tenants in Common? We are currently joint tenants. If I do this, and my partner goes into residential care, and then I want to sell up and move to a smaller house, will I have to surrender her half of the sale proceeds to pay for care costs? This would leave me with insufficient funds to buy myself a new place. What would the situation be if we kept the joint tenants arrangement?

This is a real future scenario, as this terrace house is much too big for me on my own - but flats or bungalows cost almost as much, or more, than this house will fetch.

Many thanks
John

[jenniferpa]

John - you really need to consult a solicitor about this BUT I believe the joint tenants/tenants in common thing only applies at the point that one of you dies. In the event that your partner enters a residential facility, and you choose to downsize, then 50 % of the profits go into "their" pot (with the proviso that some local authorities will allow you to keep more than 50% if you need that to purchase a home. However, they will have a lien on the property. Thus, if at all possible, it is much better to downsize before placement in a care home.

[Margaret W]

Interesting point John, and we are having a visit from an IFA on Thursday to discuss this very point. He has visited once already. I might not have it all strictly right so bear with me. If you are Tenants in Common, you can each leave your half of the house to whomever you want. Obviously you don't want to be evicted, so on the first death (not before) the first person to die leaves their house to a discretionary trust which has you as one of the trustees. Say it is worth £200,000 at the time. So half the value (the deceased person's share) of £100,000 goes into this will trust. All is fine. Of course no actual asset is transferred to the trust as the asset is a house, so the surviving spouse gives the trust an IOU for the half share. So then you have a house in your name worth £200,000, less an IOU for £100,000. The deceased person's estate has an IOU for £100,000 as the asset of that estate.

Ignoring Inheritance Tax law, which I don't think is affected, the benefit of this scheme is that if the surviving person needs care, their assets consist only of half a house. Half a house where the other half is held by a trust. The trust will refuse to sell their half, so the surviving person owns half a house which effectively can't be sold as a full house. They could try to sell their own half - but there is no market for selling half a house where the other half is owned by a trust who won't budge. So when the DWP come to consider assets for that person going into a care home the value of the house is virtually zero, as they only own half of it. And therefore any financial assessment assumes a zero value for their property. Now this is not foolproof, it is based on the attitudes of local authorities in recent years, and that could change. But as it stands at the moment, this arrangement would mean that the house would be disregarded for the purposes of determining the contribution that a person should make towards care fees.

If anyone sees a flaw in this, please let me know before Thursday. I am still not convinced, but it is what I am being told. After paying 14 months for my mum in care at £460 a week, I am loathe to let the DWP ride over me. We had every intention of supporting mum in her home for however long it took, out of our own pockets, but sadly she died suddenly. I am not about to offer the money to the DWP or local authority again, the last 18 months of managing that amount of money was a nightmare.

Best wishes

Margaret

[jenniferpa]

Yes, I think that's right but the pertinent issue is the deceased part. Mr and Mrs A own a house as tenants in common and they both have a will which leaves their share to little Master A. Mrs A dies, and so her share goes to Master A. Mr A now needs to go into a home. However, he only owns 50% of the house and master A refuses to purchase it. The LA now need to find someone who is willing to purchase 1/2 house. Not many takers for that I imagine.

However this is at death, not before. If either your husband or you have to go into a home, they still own 50% of the house. Now if you choose to stay in that property, that's fine and dandy. But if you choose to downsize, that 50% they own goes into the pot as per my post above. In other words, you may be able to save a major part of the property value should one of you predecease the other, and then the survivor has to go into a home, but there is no sure fire way to protect the value of the house if someone goes into a home and then the other decides to downsize (except by doing the downsize first).

In your position I'd definitely do the tenants in common thing but be aware of its limitations.

[Brucie]

I changed our house ownership to Tenants in Common when Jan went into her care home and, when I then sold the house to move to a smaller one, my solicitor needed to protect Jan's interests for me, by making the new property in our joint names - again Tenants in Common.

As our new house was closer to London, though smaller, there was only a slight difference in value - lower - and that difference was split in half and Jan's half was placed with her other assets.

At her attorney for the EPA, it is my responsibility to ensure Jan's interests, and I need to retain full records should the Court of Protection ask to see them.

In our case I changed to Tenants in Common to protect my own interest in the property. In the event of my passing away before Jan, I wanted to ensure my part would be distributed as I wished, and not simply into Jan's estate where her family might get it.

Legal and financial advice is always best checked.

[dalesman]

Many thanks to everyone for their replies. It's obviously a complex area. I've taken your advice and arranged to see a solicitor, but now I shall be much better prepared with my questions.
On balance of probabilities, Brenda will almost certainly need residential care at some stage; I will definitely need to downsize, but I'd prefer not to put her through a move if possible; with AD she's more likely - but not certain - to die before me. Lots to think about!

[Brucie]

with AD she's more likely - but not certain - to die before me.

it depends on her age. Those with young onset may well outlive their partners, as their bodies are still young.

Always depends on a variety of circumstances.

I have arranged all my affairs on the basis that my Jan could well outlive me, even though she is 7 years older, and has had dementia for 20 years so far.

All about setting expectations......

[Nebiroth]

Tenants in Common means that each of the owners of a property has absolute ownership of their share and may dispose of it as they wish.

This means, for example, that if one of the owners dies they may bequeath their share to whoever they want to.

If the property is jointly owned, then each of the owners effectively owns the "whole" of it. On death the surviving owners inherit the other share - regardless of what any Will says.

The main use of Tenancy in Common is Inheritance Tax planning for couples. Joint ownership is very common in married/civil partnership couples/. However, it means that when one partner dies, the property in toto automatically passes to the survivor. As Inheritance Tax is not chargeable between partners, there is no tax to pay at that point. But it does mean that the entire value of the property falls into the estate of the survivor. Effectively, the tax-free allowance (called the Nil Rate Band)of the first partner is wasted. If it was a Tenency in Common, the first partner could leave their share to (say) a child which would make use of the Nil Rate Band allowance. In essence, it halves the value of the property each person has in their estate, whilst allowing the use of two Nil Rate Bands, not one.

The other use is just as MargaretW has pointed out, again because each partner's share of the property becomes theirs exclusively, and it introduces the prospect of trying to sell half a house etc.

The downside is, of course, that exclusive ownership. If a parntership encounters problems, neither partner has any rights to the part they don't own and either can dispose or otherwise do what they wish with their share.

It;s important to take legal advice before even considering this.

As Tenancy in Common has become more commonplace because of the IHT issue, I have no doubt that Local Authorities will be looking at the mechanism, and the way that it may prevent them collecting care fees from assets. It would not surprise me to see this brought under Deprivation of Assets rules eventually.

[dalesman]

it depends on her age. Those with young onset may well outlive their partners, as their bodies are still young

Good point Bruce, and the one that's made me think I must seriously consider the change to Tenants in Common. Brenda and I share the same birthday and we're now both 61, She was formally diagnosed 6 years ago but was showing symptoms for 4 or 5 years before that.

[sue38]

I don't want to detract from the main point of this thread, which was that by changing ownership of the marital home to Tenants in Common, the non AD spouse can leave their share of the property to someone other than their co-owner.

But I thought it best to clarify the following

The main use of Tenancy in Common is Inheritance Tax planning for couples. Joint ownership is very common in married/civil partnership couples/. However, it means that when one partner dies, the property in toto automatically passes to the survivor. As Inheritance Tax is not chargeable between partners, there is no tax to pay at that point. But it does mean that the entire value of the property falls into the estate of the survivor. Effectively, the tax-free allowance (called the Nil Rate Band)of the first partner is wasted. If it was a Tenency in Common, the first partner could leave their share to (say) a child which would make use of the Nil Rate Band allowance. In essence, it halves the value of the property each person has in their estate, whilst allowing the use of two Nil Rate Bands, not one.

What Nebiroth has said above was the position before the law was changed. Now the surviving spouse/civil partner who has inherited the whole estate, can claim the nil rate band of their deceased spouse as well as their own nil rate band.

The setting up of discretionary trusts to reduce liability for IHT is no longer any more effective than a married couple leaving their estates to each other. Please note this only applies to married couples/civil partners not to those cohabiting or so called 'common law' husbands and wives.

Changing to Tenants in Common can however still be very useful if you do not want to leave your share of the house to your spouse.

Margaret, you do not need to set up a discretionary trust to give the survivor the right to live in the house. Please see a solicitor before you set up any complicated trusts that you don't need.

[sah]

Hi all: this is an area I've been wondering about too. However-although I know there is no hard and fast rule! - I had been told the early onset -usually-advances more quickly. I really don't know whether to leave house as joint or change to tenants.I'm 53-husband 60-diagnosed ten months ago. He still seems to be in early stages-but I'm trying to work out what is best to do! Minefield-so this thread has certainly made me think. Would be interested in any advice. Hope all goes well for you and yours.Sah.

[Clive]

Just to add to what Sue has said about Inheritance Tax and the new rules, which apply when the estate is above an individual persons Inheritance Tax allowance of £325,000 (which can happen suddenly when a person receives a legacy or a lottery win etc).

You need to remember that because the rules ADD the couples Personal Inheritance Tax Allowances together (to get £650,000 for a couple before Inheritance Tax is due) it is necessary for the executor of the second spouse to die to have access to the details of what happened to the estate of the first spouse to die. As there can be 10 or 20 years between the two events this can be difficult.

To put it the other way round. It is now essential that the executor of the first spouse to die carefully store away the Estate Accounts and the Will and Grant of Probate so that the executor of the second spouse can use them to prove to the tax man that the Personal Inheritance Tax allowance of the first spouse to die was not used up at that time.

Clive

[dalesman]

sah:

He still seems to be in early stages-but I'm trying to work out what is best to do!

In my view now's the time to make a decision, because the tenants issue has to be reflected in both your wills, so is best done while your husband is deemed competent to sign all the documents. I may have left it too late, because my partner isn't now competent to change her will and I'm not allowed to do it on her behalf. I'm in the process of having her existing will checked to see if it is compatible with Tenants in Common as it stands.

Good luck - it's obviously a minefield.

PS Pam if you're there, I can't reply to your pm yet because your in box is full.

[Margaret W]

It seems to me that there is no harm done by transferring the house to Tenants in Common. I appreciate all the reasons why it might not now be necessary under the new leglisation which permits one spouse to claim the unused allowances of the deceased spouse.

AS I said, the idea is that when Spouse 1 dies, half the house goes into a Discretionary Trust. Spouse 2 is allowed to stay living in the house, so gives the Trust an IOU for the half share. Spouse 2 only owns half a house, and the trust owns the other half. When Spouse 2 dies, as he only owns half a house, there will be no care fee implications as a result of that asst.

I am okay with that. Despite being an accountant, I found it hard to get to grips with. Business Income Tax is my area, not inheritance planning.

Then I got confused about the posts re downsizing. Can somebody explain those in words of one syllable? How does dowsizing affect the business re tenants in common and Discretionary Trusts.

H-E-L-P.

Many thanks

Margaret

[Margaret W]

I said total rubbish. I got mixed up between spouses - gee this is worse than deciding on a digital tv combination! We go digital next month and I can't cope!

When Spouse 2 dies, the problem is ended.

But if Spouse 2 need care, he only own half a house, etc.

I hope somebody wiser and more lucid than me can clarify.

Margaret