The need for social care (such as getting extra help at home, or needing to be moved to a care facility) is assessed by your local council, and how much you financially contribute to the cost of your care is means tested. Your income and savings will be included in this assessment, and if you need to move into residential care then the value of your property could be taken into consideration. 

 

If you live with someone (for example, a spouse or a partner), the last thing you’d want is for them to lose their home to pay for your care fees. This is where those two important things, Tenants in Common and Life Interest, come into play. 

Alright, imagine you and a friend are playing with a big box of building blocks. You each have your own special section of the blocks that you can play with and do whatever you want. If you ever decide to give your blocks to someone else, like your sibling or your children, you can do that because they're your blocks. 

 

Now, let's think of a house as that box of building blocks. When two or more people own a house together as Tenants in Common, each person owns a part of the house. This means they can choose who gets their part if something happens to them. They can leave their share to anyone they want, like their family or friends, by saying so in a Will. 

 

This is really helpful for people who have blended families or aren't married, because they can make sure their part of the house goes to the right person. So, Tenants in Common means you and your co-owners each have your own part of the house. 

Let’s continue with our building blocks theme. You and your partner or spouse have used your individually owned building blocks to build a beautiful castle. As Tenants in Common, you each own 50 per cent of this castle. 

 

A Life Interest for Tenants in Common is kind of like this: 

 

1. Sharing the Castle: You and your friend both own the castle together. You both are called Tenants in Common. 

2. Special Rules: You make a special rule that says, If something happens to me, my partner gets to stay in the castle as long as they live. This rule is like a Life Interest. 

3. After the Life Interest: When your partner dies, the castle will go to someone else, like maybe your best friend or another family member. This ensures the castle is always taken care of and goes to the people you want it to go to. 

 

So, in simple terms, a Life Interest lets someone enjoy something (like living in a house) for their entire life, and then, when they are no longer around, that thing goes to the next person you picked. It helps make sure everyone you care about is taken care of and that the castle (or house) ends up just where you want it to! 

Establishing a Life Interest ensures you control where your property ultimately goes. Your surviving spouse retains a place to live, while you can guarantee that at least half of the house will eventually be passed to your children or other beneficiaries. This portion of the property is protected from being used to pay for care home fees. Should the surviving spouse spend extravagantly, remarry, or require care, only their half of the house can be affected. 

 

This approach can effectively shield your assets from care home costs and manage the complexities that come with second marriages. A new spouse can reside in the home, but upon the original surviving spouse’s death, your half-share of the property will go to your chosen beneficiaries. 

Starting estate planning, especially with Tenants in Common and Life Interest Trusts, requires a clear understanding due to its complexity. Many people mistakenly believe that half of a property's value will automatically be ignored when assessing care fees, thinking it has no market value. However, this assumption can be risky since local authorities may evaluate the situation differently.  

 

Another common mistake is not clearly documenting the Trust details in a Will, which can cause confusion and legal issues later on. Additionally, not considering the emotional and practical effects on the surviving spouse or partner can lead to unexpected restrictions and obligations. 

 

Life Interest Trusts can also have an impact on how Inheritance Tax is calculated, particularly if your spouse or beneficiaries own other property and/or assets that will push them over the IHT threshold of £325,000. We’ll dive further into those implications in our next blog. 

 

Taking the above into account, it's crucial to thoroughly understand and carefully plan these aspects to avoid unwanted results and ensure your estate planning goals are met. 

Starting your estate planning can feel like solving a complex puzzle; it's detailed, often confusing, and needs a good understanding of your options. Setting up Tenants in Common and Life Interest Trusts helps protect your legacy, but they come with legal and financial details that need expert help. That's where a skilled estate planner or solicitor becomes essential. They not only clarify the process but also customize it to fit your specific needs, making sure every decision supports your goals and benefits your loved ones. Experts will make sure that your castle is made of granite rather than sand! 

 

Working with a professional doesn't just make things easier; it adds value, providing clear direction and peace of mind through the maze of legal rules and possible issues. They guide you on how to best use these planning tools, handling changes in laws and challenges, such as care fees. Their advice helps create a plan that meets your current needs and secures your legacy for the future. 

 

In short, getting expert advice is crucial for making your estate planning effective. It's a step that shows your dedication to protecting your family's future and ensuring your legacy is preserved as you intend.