Richard, from Bildeston, asks: "My mum died three years ago, leaving my dad living in their house. Mum had a discretionary trust in her will into which half the value of the house passed on her death in order to save me inheritance tax. I am a trustee to that trust with my dad. Dad's mental health has deteriorated to the state where he now needs residential care. Can the local authority take mum and dad's house to pay his care costs?"
The discretionary trust you describe will not only save you a significant sum in inheritance tax after your dad passes away, but it will also help to 'ring-fence' at least half (and probably all) of the value of your parents' house from being seized to pay your dad's care costs.
Before your mum died, she and your dad obviously severed the joint tenancy on their main residence in order that they each owned half of the house, rather than owning it jointly.
This meant that on your mum's death, your dad did not automatically inherit the whole value of the house and your mum's share went into her will trust.
As the trustees own that half of the house, the local authority cannot force them to sell. That means they can't get their hands on the half of the house that is still owned by your father, because it is not possible to sell half a house if the other half is owned by someone else.
If the local authority is particularly vindictive, they could put a charge on your dad's half so that they could recover some of their costs from that half when your dad dies and the house is sold.
However, in my experience, this is not something that many local authorities actually do. Even if they do issue a charge, the share of the house in the trust will still be protected and they will not be able to get that half. So, at worst, you will still eventually inherit half the house and, at best, you will receive all of it.
One other small point that will need to be addressed is replacing your dad as a trustee. If his mental health is such that he cannot any longer care for himself, he is no longer capable of acting as a trustee.
As the remaining trustee, you will need to see a solicitor to have your dad removed and replaced by another person.
This can be another family member, your wife, or a solicitor.
Contacting NickNick Plumb is an independent financial adviser. Send your questions to Nick at Bright Financial Planning, 58 Station Road, Sudbury, Suffolk, CO10 2SP, email them to
nickplumb@aol.com or telephone Nick on 01449 675674.
Nick's answers to reader questions in this column are provided only as a general guide and do not constitute personal financial advice. For any readers requiring specific advice on their own circumstances, Nick is happy to offer a complimentary initial meeting.
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