I met with a very nice elderly couple (80s) and they have a property worth about £1 million and very limited liquid assets. They both wish to remain in their home for the rest of their lives. They have no children and want to leave their entire estate to charity. Husband is concerned that if he should pass first, his wife may be at risk to other people taking advantage of her and her money. LPAs will be put in place.
What would be the best way to protect their assets (namely the home)? Would a Discretionary Trust or an Asset Protection Trust be preferable? Or could that cause more difficulties if the Trust has an interest in the property and the survivor wanted to stay in the home and release equity instead?
Blaser Mills LLP.
You have a problem setting up any sort of trust (other than a bare trust) because the value of the property exceeds the NRBs.
If LPAs are to be put in place then the attorneys should be instructed to keep a careful eye on the finances and actions of the survivor, although if the survivor retains capacity and is simply persuaded to do something which might be regarded as foolish that won’t help.
A bare trust of the property may help, i.e. transferring the legal title now into the names of nominees, or at least one additional person, as that person will then have to be involved in any attempt to sell, mortgage or transfer the property in the future.
As far as I can see there are four options
1A Life Interest trust with powers of advancement/discretionary trust with remainder to charity should work but it is costly, particularly with professional trustees.
- Buying a purchased life annuity on joint lives would be another option. With Gilt yields at current levels annuities are poor investments but they provide excellent longevity insurance. Outliving your money is a definite financial risk. Whereas the fact that they are poor investments might in most cases deter a 60 year old from buying an annuity once someone is 80 the underlying investment returns become less important (At this age life expectancy is limited and so the low yields on gilts have less effect on annuity rates because the money will be invested for a much shorter time)and the longevity insurance becomes more important. For most people living to age 110 might be seen as good thing, but financially, for most people, it is a disaster and so annuities are still attractive for people once they get to age 80 or even little beforehand. This should work too, but it does deprive her of access to the capital invested in the annuity although it does provide the longevity insurance as a not insignificant bonus.
3)Having a fair chunk of money on various term deposits with banks, which cannot be withdrawn before maturity would limit the damage as the wife could only get hold of a limited portion of the assets in what would be, for a con man, a reasonable timescale. Of course such term deposits would eventually reach their maturity dates.
4)Term deposits with a penalty on early withdrawal and or an extended notice period might be another option. An insurance bond might be an alternative.
The last two do not prevent access to the money but they do put obstacles in the way, which may be sufficient. It is the same as usual. There is good solution, which is expensive, or a bad solution, which is cheap. If cost is a consideration simply making it harder to access the money would at least reduce the risk of the lady being conned but it would not necessarily prevent it.
A house is the ultimate difficult to market asset and anyway most elderly people want to carry on living in the house they have lived in for decades so it would probably take something quite extraordinary to persuade her to sell up.
Ian McKeever & Co Consulting Actuaries