Transferring property to your children

A common concern for many people as the population is now living much longer is what will happen to their property if they need to go into a care home. Naturally, people want to protect the assets they have worked hard for during their life, however, transferring your property to your children is not always the answer, depending on your individual circumstances.

You should always seek legal advice before transferring your property out of your name, however some general drawbacks are:

Practical considerations

If you decide to transfer your property to your children whilst you are still living there, you may be risking your own security within the property.

Should your children ever get a divorce, become bankrupt or die in your lifetime, then their share of the property would form part of their estate and potentially be sold, leaving you without a home.

Inheritance tax

For the purposes of inheritance tax, the transfer would be considered as a gift with reservation of benefit if you decided to transfer the property to your children whilst you were still living there and not paying rent. This would mean that the value would still be included as part of your estate for the purposes of any inheritance tax calculations.

If you transferred the property and then either paid rent or moved out completely, the property would still form part of your estate for 7 years after you have died, meaning if you died within 7 years of the transfer, the value would be included for inheritance tax.

Deprivation of assets        

Transferring your property could also cause problems in the future. Should you ever need care in the future, the Local Authority will carry out a rigorous financial assessment and as part of this will look to ensure you have not deliberately deprived yourself of your assets. Unlike the 7-year rule for Inheritance Tax, the Local Authority can look as far back into your financial transactions as they deem necessary. If they believe you have deliberately transferred the property to deprive yourself of assets and bring yourself under the threshold for funding, they may treat you as still owning the property meaning funding would not be available for you.

Life interest trust

Instead of transferring the property during your lifetime, you may wish to include a life interest trust in your Will.

A life interest trust provides that your share in the property is put into trust for your children whilst still allowing your spouse to live there for the rest of their life. Once your spouse has died, your share will be passed to your beneficiaries (for example, your children). This means that your share in the property is secured for your children, regardless of what happens in the rest of the surviving spouse’s lifetime.

For specialist legal advice on transferring property to your children, contact a member of our Private Client team at one of our offices – York, Selby, Malton or Pickering.