What might happen if you do not retain control of your house in your Will

There are some points which you should consider before you make the decision to transfer your interest in your main residence to one or more of your children either during your lifetime or in your Will.

These notes are mainly for the benefit of Husband and Wife (or Partners) who own their house jointly and are considering how to leave the house to children in their Wills. You might be thinking that on the death of the first of you that you would leave your share of the house to the children (or in trust for them) while the survivor carries on living there. Read on. Imagine the scenarios where the house is owned half by the children and half by the survivor of you.

One
What would happen if your child dies before you? The property or his / her share in it will pass under their Will or under the rules of intestacy to their spouse or children or indeed someone else who might ask for payment of their entitlement out of the property.

Two
What happens if your child gets into financial difficulty? Your child would need to disclose his or her share in the property to the Trustee in bankruptcy or creditors who in turn may well put pressure on you while wanting the house sold so that they can be paid. Even if the creditors did not go that far, they may still place a charge on the property affecting your child’s share which means that immediately after the house is sold the money would be used to pay the creditors.

Three
What happens if your child becomes involved in matrimonial difficulties? Again, the share which they own in your property needs to be disclosed in matrimonial proceedings and would undoubtedly have an effect on the outcome of the matrimonial financial settlement. Your son may end upon paying more to his ex-wife or your daughter may end up receiving less from her ex-husband.

Four
What happens if your child needs to apply for any form of means tested benefits. This may include certain entitlements which do not exist at the moment but which might come into play later. Your child would have to disclose that he or she had a share in your property which had a value and this may well affect his or her entitlement to those additional benefits which in turn would cause financial embarrassment to them and possibly some family awkwardness. It would be too late for your son or daughter to quickly transfer the house back to you.

Five
There is also the risk of Capital Gains Tax liability to be paid by your children as and when the property is sold, either during your lifetime (if the gift is made during your lifetime) or after your death (if the transfer is through your Will). As the property would not be the main residence of your children it would be subject to Capital Gains Tax liability if the difference between the value at the time of transfer and the value at the time of sale exceeded their respective personal gains tax allowances. There would need to be a fairly appreciable increase in the value of the property but this could easily occur in a short space of time depending upon the housing market.

Six
You yourself (or more particularly the surviving spouse) may want to apply for certain benefits or indeed wish to continue to receive certain benefits (e.g. council tax). You may even wish to apply for a local authority grant facility to be able to carry out work on your house, such as, incorporating a downstairs toilet or other alterations to make it easier for you to live there rather than going into a Nursing or Residential home. The fact that the property would not be owned wholly by you could well disqualify you from that grant.

Seven
Once a gift always a gift. There may come a time when you (or more particularly your surviving spouse) want to sell the property and use the money to spend on yourself or buy another property to live in. If the property is owned (wholly or in part) by your children, the money from the sale of the house belongs (wholly or in part) to them as well and it would be entirely up to them whether they released any money back to you.

Eight
You may see an opportunity of taking advantage of an equity release mortgage. These schemes allow you to receive a lump sum of money to spend how you will, and that payment is secured on the property. As the property would not belong totally to you, you would not be able to benefit from the equity release schemes because you would not be the true owner-occupier.

Nine
If you think that you will be benefiting your children by letting them have the house so that it is not used for the payment of Residential or Nursing Home fees then you could be regretting this move. There are the potential dangers in transferring a house simply to deprive yourselves of assets to be able to claim means-tested benefits. But these aside, if at the time you (or the survivor of you) went into a Residential Nursing Home you had savings which were less than the eligible limit (currently £23,500 for 2011/2012) then you would be able to apply for income support or local authority benefit to help the payment of your accommodation fees. However, your choice of accommodation would be limited to those homes which were acceptable to the local authority or benefits agency and came within their financial guidelines. You may prefer to choose a home which is more convenient or offers facilities more to your liking. Without the financial means to contribute to the accommodation fees you would not have that freedom of choice. Furthermore, you may not actually benefit in any way from transferring the house away from you. You do not have to sell. You could rent the property and use the rental income towards paying the home fees. Even if you sell, the money could be invested to generate monthly income which would go towards paying your fees. You could actually end up losing some of your savings if you did not have all of the capital to use from the sale of your home.

Ten
All of the so-called pitfalls which are described above would hopefully never occur, in which case transferring the property or your share of the property through your Will would not cause any future problems. However, you cannot guarantee that the surviving spouse would not regret the decision to transfer part of the property through the Will of the first of you to die, nor can you guarantee that the people whom you are transferring the property to will be as understanding and encouraging to you then as they are now. They themselves may come under some pressure from other people which in turn may make things difficult between you and your children, and they may end up regretting having received a share in the property as much as you regret having giving it to them.

Main Contact:
Derby: Simon Richardson
Burton: Nick Green
Leicester: Pat Young