Episode 3: About getting old
All you need to know about getting older
Overview
Getting old is an inevitable part of life and in this episode, Austin looks at the various steps to put in place for peace of mind in later life.One by one, Austin goes through each step in length and tackles the many questions people have such as when to do a power of attorney and if it’s advisable to transfer property to children or put property into a trust. First of all, he explains what a power of attorney actually is and whether they’re more important than a will as well as how to safeguard against the wrong people having access to our finances. Then he tackles inheritance tax, when it might be triggered and why avoiding tax is different from evading tax. He discusses how to prepare for care home costs and the pros and cons of equity release. Finally, he considers how to put your financial and digital assets in order and why when it comes to drafting a will, even James Bond has some wise words on the subject!
Meet the contributors
Austin Lafferty
Consultant Solicitor
Austin is married and has two adult children – one of whom is a solicitor in London. He has run many road races including several marathons, the most recent being London 2015, and has raised tens of thousands of pounds for various charities. His main sport is karate – he is now a fourth Dan black belt. Austin has also worked for many years as a professional artist, specialising in drawn and painted portraits – both human and animal!
Angela Roberts
Producer & Host
Before becoming a freelance producer, Angela has had a long and varied career at the BBC – first as a radio producer on live topical phone in shows on BBC Radio Scotland and Radio 5 Live where she met and worked with Austin, before producing radio features for BBC Radio Scotland and Radio 4. She then moved to Digital Learning at BBC Scotland working on a number of campaigns such as A History of the World in 100 Objects, Commonwealth Class and BBC News School Report. Latterly Angela led Authors Live, a partnership project with Scottish Book Trust, producing live TV events on iplayer featuring children’s authors.
Transcript
“Hello, and welcome to It's The Law with me, Angela Roberts, and solicitor Austin Lafferty. Today, we're going to be looking at all things associated, legally that is, with getting old. Getting older, like it or not, is an inevitable part of life, whether it's ourselves or our relatives.
So what plans should we put in place to ensure a comfortable future in later life? In this episode, we'll discuss everything from powers of attorney and wills to inheritance tax and care home costs, as well as equity release and how to sort out your digital assets. Austin, how and when should you start preparing for getting older, because none of us has a crystal ball, so it kind of makes things difficult, doesn't it?
It really does. And that crystal ball thing, I see it in practice, if not every day, then certainly every week. Almost think of it as a starting off point as, how would I go about insuring myself against future risks?”
“Now, you insure yourself as a car driver by taking out car insurance. You've got to as a matter of law. So you should think of particularly a will and the power of attorney as that.
In a sense, one is a risk, one's not. With a will, we are all going to die at some point, whether we're old or not so old. Power of attorney is a bit of risk management, because we might live a perfectly healthy life until we suddenly die.
And that might be a very great age. And we've never needed anybody's help. We've lived in our own house, and we've looked after our own money and health and property.
But we may take on a bit of dementia, or we may have a stroke and suddenly be unable to look after ourselves. If we haven't planned ahead and had a power of attorney in place, then it's a disaster. You've got to go to court for a guardianship order.
It's expensive, it's time consuming, it's distressing, it's intrusive. So the answer to your question is there is no time like the present. Whether you're in your 40s, 50s, 60s or
“beyond, if you haven't done anything about it, then do something about it now.
But if you have been ahead of the game, you will have started. And it's a question of updating wills or checking powers of attorney to see if you need to make any changes because you made them 10 years ago, or keeping an eye on inheritance tax to see if your estate is likely to be anywhere near that every, you know, so often when you update yourself every maybe five years or so.
OK, we talked about making a will in our first podcast. Is that really the first thing to do? As some people I know claim, doing a power of attorney is even more important.
Well, if you listen to the great Martin Lewis.
That's who I was talking about.
Exactly. And Martin and I, as the pals that we are. And incidentally, I'm not speaking behind his back, but I'll say to you that off air, he is just as fast talking and knowledgeable and authoritative and dynamic as you see on the television screen.”
“He's a fantastic operator and a very wise person. And he takes the view that power of attorney is more important than a will. And I understand why he says that.
And it's because in Scotland, a government scheme, call it that, intestate, if you don't make a will, then your estate will still be processed, still be wound up, still go to your family, albeit not in the shares that you might have chosen by making a will. But something will happen. It will get sorted out.
Power of attorney is not like that. If you do not make a power of attorney, and you suddenly deteriorate and are unable to look after yourself, it's too late. You simply cannot go back.
If somebody has dementia or serious dementia and cannot, you know, they're not having good days and bad days, they're just ill and they cannot come back from that, then you cannot make a power of attorney for them. You also cannot as a wife, as a grown up child, as a member of the family or even a professional person, you cannot march into the bank and say, I'm this person's next of kin or lawyer or representative, I want to move their money about. The bank will rightly say, no, you can't.
Have you got power of attorney?
No.
So the alternative to that is this guardianship order that I mentioned, which is a long drawn out court application and a hearing in front of the sheriff, wearing his wig or her wig deciding, and potentially even refusing the application for guardianship, if there is a reason that they are unhappy with what's being asked. Whereas a power of attorney is essentially a private procedure where you go along to your lawyer, it gets drawn up according to your specification, signed, witnessed, certified, and then registered with the public guardian without anybody saying, no, this is legally unacceptable, or I want to ask you more and more questions. As long as you're guided properly by your lawyer, a power of attorney can be completed and registered.
And yes, I think I agree with my pal Martin. It is in some ways a more important, certainly a more urgent thing than it will.
Okay, let's just have a recap then. What is a power of attorney exactly?
Right, it's a letter. I'm going to use the phrase letter of authority. It really is that it's a note that you, as a person to write out, saying I, Austin Lafferty, wish to appoint Angela Roberts as my attorney for both what they call continuing purposes in Scotland.
That's what we call the financial and property side and welfare purposes. And that does what it says in the tin. You can decide if I'm to go into hospital or a nursing home or if doctors are to treat me, to be operated on.
I trust Angela Roberts to do all that, and I will sign it, it will be witnessed, and then a solicitor or advocate will certify it to say that I am of sound mind able to make that decision to appoint you, and that I understand the consequences of that. Now, that power of attorney doesn't need to come into play straight away. Indeed, the real best way of doing it is to make the power of attorney when there is no need for it, because you're in full command of your senses.
You're saying, this is for the future when I am no longer able to look after myself. But it's signed, it's registered with the public guardian's office, and make sure if you're Googling or checking or asking that it's the public guardian Scotland, because there's one in England and one in Scotland, and they are different organizations. So from our point of view, Scotland is where we are operating.
That's where our house is, or my house is, that you're going to sell for me when I go into the nursing home. That's where my bank accounts are, and that's where the public guardian operates for my estate. So once that's registered, it sits there unused.
I go about my normal life, but if I suddenly deteriorate, take that stroke or get ill, my dementia grows and I can no longer look after myself, you step up to the mark and show that power of attorney, registered power of attorney to my bank, use it if you're selling my house, speak to my insurance company and maybe the local social work department if I have to be placed in a nursing home. So it is a kind of comprehensive document of authority for somebody to look after somebody else.
And what sort of person would be the attorney, if you like? Is that what you call them? Yes.
I mean, it would be a spouse or a cohabitant, maybe. But what if they have died or they don't have capacity? Do you put a few people on or how does it work?
It's always a good idea not to just make it one person, because again, we're talking about death and destruction here. You could both be in the same car accident and both be hideously injured and maimed and unable to look after yourselves. Or you could both actually take on mental incapacity, dementia at the same time, maybe at different rates.
But just again, we've talked about risk management and planning ahead. Best to make it more than one person. And by that, if you are in an old fashioned kind of, you know, ma pa and the weans, then you appoint your spouse or partner.
But as a backup, appoint grown up children if you have them, or if you don't have children, then nieces and nephews. Somebody that you trust and you know can do the job. It doesn't need to be a family member.
It can be a friend, although bear in mind, if you're appointing one of your own friends, they're the same age as you. So, you know, it might not be a long term thing. It may be that you have a family who are friends of yours, where you know the grown up children and they could be trusted and are willing to do it.
There's a lot of things to think about with the power of attorney. But the principle thing is working out who are the best choices. But as you ask, and I agree with you, you should make it more than one person for that purpose of spreading the risk.
Now, you're saying someone you can trust. Now, I know there's been a lot of horror stories recently with people who are not necessarily the right people, who have access because maybe someone has dementia and has been persuaded. You know, it might not even be a family member.
It could be a church, elder or minister or whatever. So what are the risks of doing that? And appointing someone that then isn't who we think and trust?
Well, you're absolutely right. And prevention is better than cure. So you should do a lot of preparation and of actually speaking to not only the person or people that you're intending to appoint, but other people as well.
It shouldn't be a kind of secret thing where you have a hushed conversation with somebody, you sign them up as your attorney and then you hope everything will go well. You should, again, we've talked about risk management, you should understand that there are risks. And it's not even just that the person you appoint may run away with the money, they just might not be up to the job and they might panic or they themselves might then rely on somebody who's not up to snuff either.
There are a lot of risks, but I think, in every circumstance, every family is different, every person is different, so you can't make absolute rules. But a couple of things. One is talk to people in your family so that the right range of people know what you're thinking of doing, because you can be pretty sure that if somebody is unhappy about a potential choice, they will tell you.
They will make it absolutely known what they don't like about XYZ person. Speak to your solicitor and go through the choices with your solicitor. Now, your solicitor may not know any of the people you're talking about, but they will be experienced in these appointments and in the troubles that can arise.
And will talk sensibly to you and give you good advice about how to go about your individual appointment or your individual power of attorney.
Could you have your solicitor as a power of attorney?
You can do that. The downside of that is that if they're going to do it as a professional appointment, then there may be a substantial cost because there's quite a lot of work to be done potentially. And there's more work to be done if somebody has a portfolio of money and property, and things need to be done to finance care home fees and so forth, so that there's an ongoing programme of work.
You can appoint a solicitor as one of a number of attorneys, maybe even two or three, so that the solicitor is in the background only coming in when something needs to be done, or there is a difficult decision to be made, and maybe a casting vote is needed. So again, this sort of thing you and I have been talking about this for about five minutes. You should go and see a solicitor and talk about it for half an hour.
You should talk to family and even friends, trusted friends about it. So I think the point is that you shouldn't just jump into a power of attorney and sign up the nearest person you can think of. Do consider it, discuss it, work out what might go wrong, and also make sure that other people know about it.
For example, if you're appointing, you know, your eldest child, eldest two children, make sure they know the other three know about it or that other members of the family that you're in contact with know what's to happen. If all of that kind of goes wrong, then the public guardian has the power to investigate an attorney and to make orders discharging them from the job. And indeed, if relatives think that the attorney has been misbehaving or being careless or wilful or crooked with the money, they can actually ask the court for an intervention order, which is a bit like a guardianship order that we mentioned earlier on.
“But it's a way of stopping the attorney in their tracks from, you know, carrying out the...
Emptying the bank accounts.
Emptying the bank accounts. So there are backups. Now, actually, the worst stories have tended to be from England. And I don't say that as a sort of jingoistic Scottish who's like us thing. But the regime in England is different from what it is up here. We have fewer of these problems, but the problems happen.
And recently in the papers, there have been one or two stories about incapacitated individuals having their wealth taken away from them and it's been very distressing things to read. Those things can happen, but they're very few. But the way of getting, of avoiding them is good preparation.
When does it actually come into force?
The power of attorney comes into force in one of a number of instances. First of all, if somebody is, you know, deteriorating and you manage to get, you know, legally and appropriately their signature in a power of attorney before they really kind of sink into dementia, then it comes into force pretty much straight away. Indeed, the public guardian in registering the power of attorney will take months to do it.
That's no criticism of them. They're always overwhelmed with numbers. But if it's needed urgently, then the solicitor can go on to the public guardian and say, this one is an emergency. Can you please expedite it? And they will literally take it out of the queue, bring it to the front and register it and give it back to you almost immediately.
So if someone was in hospital, for example, that would be a scenario that...
Exactly. I mean, I've had them where somebody is suffering from a terminal illness, and they need somebody to take over almost kind of instantaneously with bank accounts and property and things, because either medically or indeed psychologically, they just kind of can't cope anymore. So the emergency power of attorney works there.
But in the ordinary run of the mill, you make the power of attorney, it gets registered and kind of put away in a drawer, a digital drawer, that is. And once it is needed, having been registered with the public guardian, it can then be registered, with a small r, with the bank, or with the local authority, the social work department. Basically, it can be shown to these organizations, and that makes it effective so that the attorney who is appointed can be recognized as the person entitled to make the decisions and sign the things.
I had one where a person I had known many years ago, and I had done legal work for, and then the next I heard was these many years later, I was told she was in hospital and unable to look after herself. So I had to scramble into action. I was the attorney.
She didn't have family. I was the attorney. I am the attorney.
I had to scramble into action. And one of the things we did was we had to register the power of attorney with her bank. And I physically, personally had to go along to a branch of the bank, present myself.”
“Now, they knew me anyway because it's local. And they said, Oh, hello, Austin, how are you doing? I said, Well, I'm here for a different thing today.
And I show them the registered power of attorney. They put it into their system. So I am able to access that lady's money for her benefit and pay nursing home fees and other bills.
So when the power of attorney was made, it was years and years and years before she would have ever remotely needed it. But when it came to be needed, it was already registered by the public guardian. And therefore it could be kind of copied on almost to the bank.
So that's point number one then for getting old, do a will and do a power of attorney. Do you usually do them at the same time really?
Well, that's a matter of personal choice for people, but it is a natural counterpart to doing a will is doing powers of attorney. And people very often are ready to do it, ready to talk about that once they've got in their mind what they're doing about their will.
So next on my list is inheritance tax
“Oh, wow, yes.
If someone wants to leave their home to their children, will they be subject to inheritance tax and are there ways to minimise it? Now, I'm not looking to break the law, but what can we do to stop our relatives having a huge tax bill?
Sometimes nothing, because HMRC, who are the tax authority for inheritance tax, are not daft, and they've been around a long time, and they know all of the usual ways of trying to avoid tax. And by the way, I say avoid tax. Avoiding tax is fine.
Evading tax is illegal, and that's a distinction that very often is not understood well. I mean, to be fair, the Inheritance Tax Rules are not all one-sided. They're not fully geared towards raiding your bank accounts the moment you pass away.
There are exemptions and allowances. Broadly, it's this. Each person individually has an allowance of 325,000 pounds.
So if your estate is less than that, there's no tax. If your estate is more than that, then it's broadly 40% of the difference between 325 and whatever the total is. If you're either a married couple or civil partners,then when the first partner or spouse dies, their 325,000 passes on to the other.
So you're already at 650,000 when the second spouse or partner or parent dies. Now that's on the assumption that the first spouse that died has left all their estate to the surviving spouse. But there's another allowance which is more germane to your question.
For the house, if as parents you are leaving the house ultimately to the children, and it can be children, adopted children, stepchildren, grandchildren, as long as it's kind of going down the genetic line, then there are additional allowances of 175,000 pounds for each of the two parents. So those of you who are quick at arithmetic will have worked out that the 325 plus 325 plus 175 plus 175 is basically a million pounds. So for most ordinary family type situations, there is a maximum of a million pounds allowance or exemption in inheritance tax.
But when you're making your will, the solicitor will ask you about the makeup of your estate because there are all sorts of pitfalls and potential problems that you can get into by not having an eye on inheritance tax from the moment you start thinking about a will. For example, if you decide, and I know we're going to talk about care costs and moving properties around to the family, I'll give you one small example. If you have a house and you think, oh, right, I'm going to avoid inheritance tax by putting that house into a trust and the trust is different from me legally, so when I die, there'll be no inheritance tax on the trust.
Now, as a bold statement, that's correct. But if you do that and don't live the seven years after creating the trust, and in effect, you've left the house to the trust and not to your children, then you won't get the two sets of 175,000 pounds allowance, so you've shot yourself in the foot. And I give that as one tiny, tiny speck of an example out of the hundreds of millions of possibilities.
But the point is this, making a will on its own is not enough, is never enough. You've got to tell the solicitor, the solicitor's got to ask you what your estate is made up of. Because if it's clear that there's no inheritance tax, exposure is the word we use, you know, your house is worth a couple of hundred thousand pounds, you've got a hundred thousand pounds of savings, then even if it's just one of you, that's not, you're not going to go over the threshold.
But if you've got businesses and properties and a few cars and big savings, and your estate when brought down to a simple arithmetical sum is more than the inheritance tax threshold, that's the time to think of the possible ways there are of legitimately avoiding inheritance tax. One of those is giving away gifts of money to your children. One of those may be transferring property into a trust or to even to your children, but we'll talk about that specifically.
But you've got to do these things, understanding what the risks are and what the downsides are. But the sequence of events is decide that you're going to make a will, see the solicitor, discuss what you want in the will, discuss what's in your estate, and look for any inheritance tax issues, either for or against.
OK, you mentioned there something I was going to ask, because often people think, should I transfer my property to my children, you know, before I die? What are the pros and cons of that? Presumably, they could kick us out, though, if they're, you know, if we suddenly fall out and they own the house.
There's all sorts of downsides to it. And people do go to this as a kind of instinctive thing. Oh, right, I'll pass the property onto the children, the house onto the children, because they're going to get it anyway.
And, you know, that's got a logic about it. And in close loving families, that it can seem like a perfectly decent idea. And actually, in some ways, it is, in some ways.
But the downsides are considerable. And again, talking about risk, risk management, these are the risks. Some of them might not happen, but if they do, you're stuffed.
And those risks are, your children might fall out with you, as you say. Also, the children themselves may run into difficulties. They may die, and this house is in their estate, not yours.
So it goes under their will, or goes to their children, or their family. And it may be different from, you know, if you and your husband were divorced or
“you and your wife were divorced, and so there's kind of two separate families, and your joint child dies, then, you know, your property could go to the other family. There's all sorts of risks there.
The child not dying, but could get into financial trouble and go bankrupt or be sued, and your property will be arrested along with everything else by their trustee in bankruptcy. It could be simply that they, the children, have a kind of adverse tax situation, or have all sorts of pressures, or they may even want to put a mortgage, or have to put a mortgage on your property that you're living in. Another downside is, and again, this is only for those people for whom inheritance tax is a live issue, by giving away the property and still living in it, you're getting a benefit in kind, which is a taxable benefit, which if everything goes in a certain way after you pass away, may actually put tax back onto your estate.
You think you've saved it, but there's a tax issue, and it may be a tax issue going back all the years from when you transferred the house into the into the children's name, and that could be quite a long time. So, you know, already we're seeing that there are complexities here which need to be discussed with a solicitor and accountant or both. Another downside is when we come to talk about care costs, this will come into it.
If you give the property away, and we mentioned the seven year rule for inheritance tax, but if you give the house away and then have to go into care home and you're assessed by the social work department who say, right, Mr. Lafferty, what assets have you got? And you say, well, I've got a bank account and I've got a bit of insurance and I've got a car. And they say, oh, don't you own a house?
I'll say, no, I don't own a house. And that would be correct. That would be legally right.
That would be accurate. Ah, but we looked back in the registers and you did own a house up until three years ago when you transferred it to your son and daughter. Why did you do that?
And I'll say, well, I was just planning. I was just doing some tax planning and just a general family reorganization. And they say, but that was the same time that you were diagnosed with dementia for the first time.
And I'll say, yeah, yeah, that's a coincidence. And what they then say is, we consider that you have deliberately disposed of this property to defeat an assessment, a capital assessment. And although they can't bring the house back to me, this is the worst case scenario, they can't bring the house back to me and cancel out the transfer to my children.
But they can say, we are going to assess you on the basis that you still have that capital, and therefore you do not qualify for the means tested benefits, which you otherwise would qualify for. So it's up to you. Either you cannot get into the nursing home or your children will need to kind of cooperate and pay for you.
Or what they sometimes do is they say, again, this has to be with the cooperation of the children, we will put a charge on your property, a security on your property, so that when you eventually die and the property is sold, the money will come back to us. So what seems to people, maybe Googling it, saying, right, I am going to ring fence my property by giving it away to my children, there are all these risks. And nine times out of ten, we say to people, don't do it.
You did mention care home costs there. And I'm just wondering if one member of a couple who've got a shared home, it's maybe a spouse or a cohabitee or whatever, does have to go into a care home. What happens to the other person?Do they have to pay anything? Or how does that work out?
The capital value in the home is discounted or ignored at that point. If you have two people who live in a property together, now they don't need to own it together. One of them can own it, and the other one just lives there as spouse or partner.And it may be that it belonged to the person that owned it before the two got together. They got together and just never bothered transferring the title into joint names, and absolutely fine. The fact that the one that's not going into a care home is still living in the house as their permanent residence, that is the crucial element that removes the value of the house from the assessment.
Now, it's kind of more even than that. If, for example, the parents live together in their own home, and one of their children also lives there, perhaps that has been a child with disability, or there's somewhat been some other fundamental reason why they need to keep or that that child, grown up child, needs to still live in the family home. They're also a permanent resident, so in that situation, even if both parents have to go into care, the house is not taken into assessment.
But in the ordinary situation, well, is there such a thing as an ordinary situation? Let's say the old fashioned situation where it is, as I said earlier, my parents, the weans, the weans are away with their own houses and families elsewhere and come to visit at weekends, etc. But it's mum and dad still live in the house.
Mum dies and dad lives in the house on his own. If he then has to go into care, that house will come into assessment because there isn't another permanent resident in it. And the children must kind of look on and say, well, that's our inheritance getting chipped away because it had to be sold and the care home costs are gigantic.
Even without the benefits in Scotland, there are benefits that are automatic, but there are also means tested benefits, and the care home fees are kind of part of that. So with the huge amount of money that we're paying every week or every month, the value has just been chipped away from what's left of our parents' capital. So if an elderly parent keeps their physical health long enough that they live in a nursing home or a care home for a long time, then it can be ruinous on the finances.
But, again, I said earlier on that HMRC are not daft. The assessment people, the social work departments of the various councils that deal with care home placement, they're not daft either. And indeed, there is a big booklet which I have in the office, which gives all the rules that there are for assessing adults going into care homes.
And the section on the loopholes and the little curlicues of, you know, how you assess money and property are very clear, that if somebody goes into care and has disposed of a property for the purpose of avoiding the care costs or the care cost assessment, then that will be struck down.
So there's not really anything you can do about that then?
Other than planning well ahead. And I've had clients who have come in in their 50s or even 60s and say, we're looking ahead, we are physically well and fit just now or we're still in business or we're still working or, you know, we've only just got a shot of the youngest of our grown up children married away or off working in London. So we are now assessing things we want to make wills and we want to talk about future inheritance tax and care costs.
In that situation, it can be perfectly legitimate to move property and money around and to put things in trust where there is at least a good reason for doing it. You're not facing going to care, getting dementia, becoming ill, having to worry about passing away. Yes, we could get any of those things tomorrow, but we are in good health.
We are in a good place financially, mentally, property wise, career wise. So we've decided we're going to create a trust and put money and property in it. And in that situation, it should be enforceable.
And if seven, eight, nine, ten years later, there's a care assessment situation, you can legitimately look back and say, I did this for the right reasons.
OK, so we've talked about powers of attorney, wills, care home costs, inheritance tax. What about if you're not bothered about passing on anything to your kids and you want to release some money from your house, from your property for your retirement? You want to go on cruises.You want to do various things.
Yeah.
That's equity release, isn't it?
That's right. And it's a perfectly legitimate thing to do. It used to have a bad name, equity release, because, you know, your images of sharp salespeople coming round and signing old folk up and them turning around and saying, I don't know what's happened.
It's highly regulated now. And in fact, I don't deal with mortgage arrangement, but I know some good mortgage brokers who specialize in this and the industry is reasonably well policed. And the advice would be, if you are thinking of doing it, see your solicitor first, because it's the solicitors who are in charge of the actual mechanics of it.
And the mechanics of it are almost like buying your own house again, in the sense that you go to a lender and the lender lends money on the security of the house, and you grant what we call a standard security, which is a mortgage over the house, which is registered with the title deeds. The kind of heavy lifting is in getting the best deal, working out how much money to borrow, what the repayment terms are, and whether there is an actual repayment, or it's just maintaining the interest until you pass away, when your house is sold and the lender is paid back. It's not for everybody, and before you make any decisions, you should learn about what it means and what it would mean for you in particular.
And that's why I say go and see your solicitor and talk through it. Then speak to a mortgage broker, a specialist, preferably mortgage broker or lender, and work it all out before you take things forward. But if you decide to go ahead, then make sure that it's the right deal for you.
But at the end of it, what you should have is money in your bank and a property that is securely yours. You cannot be evicted from it. And you then put the money to good use and, you know, carry on from there.
What about if when you do die and the whole thing is then goes to the lender, as you say, what about if the value of the property doesn't actually cover that? Is that ever a scenario? Would your children then have to pay some money back?
If that happened, then it wouldn't be your children who would pay the money back. It would have to come out of your estate. But there's two things at play here.
You would not willingly or easily sign up to a deal that ever had any loose ends at the end of it. So that the risk would be with the lender if the money they got from selling the property after you died was less than the loan outstanding. In a way, it should be their responsibility to gear the lending properly.
Now, the reality is, that's the first thing. The second thing is that the reality is the lenders are smart themselves and they've done it a million times before. They will have the property surveyed or valued, and they will calculate the amount you can borrow based on the value of the property, so that they're lending less to a degree that even if you live for X number of years, and they'll have done all the arithmetic at their end, then they will still get their money back.
And of course, bear in mind, you're still paying interest usually on the deal, so that you're kind of topping up. What's the opposite of topping up? You're keeping the loan kind of down to what was borrowed initially.
And the third thing I think to say is, realistically, most property goes up in value over time, and whatever the value was when you were given the loan, and the loan, bear in mind, was geared to being less than that, then when the time comes for the loan to be repaid, the value of the property, whether it's your executor of your will, selling the property, or indeed the lender themselves selling the property, then the chances are that there will be a good equity left over after repayment.
Now we've sorted out what happens to our house, any house that we own, any property that we own. What about other financial assets? I mean, you do hear the saying you need to sort out your affairs.
Well, start with that old-fashioned bit of paper and a pencil, and write down everything that you have, and although we are talking about our assets and our will and our power of attorney and so forth, pensions sit slightly outside your legal estate. They are essentially a discretionary asset which somebody else owns, the pension trustees and pension administrators, and you are the beneficiary of that, and your family may be. We really should liaise with the pension administrators and say to them, if I die, what will happen? Who will get my pension benefits? What do they need to do to access them? And is there anything else I need to do now to make that secure?
And the one thing that you really do want to make sure you've got is a letter of wishes, sometimes known as a nomination. There may be a part in the forms that you've complete when you're setting up the pension or updating it that create a direct nomination, and that's why I say letter of wishes, nomination are kind of the same thing. If there's not, then either you yourself or with the help of the pension people, or indeed with the help of your lawyer, can do a letter of wishes setting out what you want to happen when you die.
But kind of check, you know, before going to that expense or effort, check with the pension people those questions that I suggested that you ask, and on the back of that, work out what, if anything, you need to do. The same is true with some insurance policies, because very often you hear about policies, insurance policies for your life being set up in trust. And that does what it says in the tin.
It means that the insurance company have added a kind of feature to the policy. It's on your life and will pay out on your death, but it is in trust and therefore beneficiaries are listed, and it may be your children or your spouse or both. And that's something, again, if you've got an insurance policy or any financial asset, go back and check with the people that are running it for you, with the bank or building society or insurance company.
What is the status of that product? Is it in trust or not? Do you need to do anything with it to either put it into trust or to discuss that?
Okay, and what about things just like everyday things like your bank accounts, credit cards, any of these kinds of things? Should you be leaving a list of passwords or something or?
Oh, for God's sake.No, don't do that.
Well, I say no, don't do that. And I'm just, that was really just for dramatic effect. The answer to that is yes, you should, but not a list of passwords.
There are lots of online apps and features and products where you can kind of vault things like passwords and so forth. But from a lawyer's point of view, my interest is in authority, the authority being given to the executor or to somebody after you pass away, so that that person can access your digital assets. The will should really give a specific power to either the executors or to somebody else, doesn't need to be the executors, it can be a family member or a friend or something, to interact with the digital companies in order to give them authority to either bypass passwords.
Because strictly speaking, your account with whoever it is, Apple or X or, you know, Facebook comes to an end when you die. So strictly speaking, even your executor doesn't have authority to use your username and password. You should add in a clause saying, I hereby give immediate authority to my executor or whoever to, you know, access all my online accounts, whether bank, insurance, work even, and make as comprehensive a list as possible, even name the companies.
That will may just, it may just be possible to present a certified copy of that will to the company and they will then grant access. Put in a practical way for those left behind to get into those accounts, but also give legal authority by way of a clause in your will.
Well, I think we've covered quite a lot here. You've talked about the social media accounts as well. That was my last sort of question. Is there anything else you want to add that we haven't covered?
Make friends with everybody before you die. Don't leave any enemies. Don't leave loose ends.
And actually, although I am sort of doing that as an and finally lighthearted thing, there is a serious element to that. Depending on how you prepare your will, do bear in mind that people are not going to know about it until you die. It's a private thing between you and your lawyer, and it's put away in a cupboard and kept secret.
It's not, you don't need to register it anywhere. So it's essentially an absolutely private document and arrangement. When you die, death brings out what's the best and the worst in people.”
“If you've left something, which is in effect a ticking time bomb for the family, for example, you've got four children and you leave three of them the same and one not, then that can be a recipe for terrible in-fighting. And even if you think you're doing the right thing, take time to consider how those who are left are going to deal with your death. They will be grieving if they liked you and miss you.
They will also all have to deal with each other. And if you have left a provision, and I'm not saying that three getting the full whack and one not, I'm not saying that's wrong, but either don't do something that you know is going to cause a fight, or explain it all either in the will or in a separate piece of paper that's not a legal document, but just is a note that goes in with the will. Lots of people do that.
But have a kind of moment where you think, how is this going to play out? Do I want to do something that is possibly going to hurt people?
Maybe I do, for a very good reason, but only do what you have to do.
Try and think of the best way of keeping everybody as sweet as possible, and remembering you as positively as possible. Now, I may say all this because I'm a coward, and I always say, I don't know why I became a lawyer, because I am a lover, not a fighter. But I see this again and again.
People making their wills. Very often, it's like the kind of Catholic confessional. They come into my room, and they tell me things that nobody else knows.
And I've got to try and help them with that. And more often than not, looking back over 43 years, whatever it is, I can say, I've sometimes counselled people, yes, you could do this, but think of what that's going to mean and how that's going to potentially hurt people. Think of another way of doing it, and maybe get the same result, but going about it a different way.
So I'm sorry for that very long answer to your final question, but that is the extra thing. We've been talking about property and money and houses and insurance and pensions, and those are all very important, but you're talking about the end of a life, and with Power of Attorney, the active life being removed so that you become, frankly, a burden. I always reflect on the James Bond film Casino Royale, when the plot is about James Bond playing cards in Montenegro against all the villains, and somebody asks him, so James, why are you the best poker player in MI6?
And he says, it's because I don't play my hand, I play the other person's hand. And when you're making a will, that's what you should do.
Austin, thanks very much.”
So what plans should we put in place to ensure a comfortable future in later life? In this episode, we'll discuss everything from powers of attorney and wills to inheritance tax and care home costs, as well as equity release and how to sort out your digital assets. Austin, how and when should you start preparing for getting older, because none of us has a crystal ball, so it kind of makes things difficult, doesn't it?
It really does. And that crystal ball thing, I see it in practice, if not every day, then certainly every week. Almost think of it as a starting off point as, how would I go about insuring myself against future risks?”
“Now, you insure yourself as a car driver by taking out car insurance. You've got to as a matter of law. So you should think of particularly a will and the power of attorney as that.
In a sense, one is a risk, one's not. With a will, we are all going to die at some point, whether we're old or not so old. Power of attorney is a bit of risk management, because we might live a perfectly healthy life until we suddenly die.
And that might be a very great age. And we've never needed anybody's help. We've lived in our own house, and we've looked after our own money and health and property.
But we may take on a bit of dementia, or we may have a stroke and suddenly be unable to look after ourselves. If we haven't planned ahead and had a power of attorney in place, then it's a disaster. You've got to go to court for a guardianship order.
It's expensive, it's time consuming, it's distressing, it's intrusive. So the answer to your question is there is no time like the present. Whether you're in your 40s, 50s, 60s or
“beyond, if you haven't done anything about it, then do something about it now.
But if you have been ahead of the game, you will have started. And it's a question of updating wills or checking powers of attorney to see if you need to make any changes because you made them 10 years ago, or keeping an eye on inheritance tax to see if your estate is likely to be anywhere near that every, you know, so often when you update yourself every maybe five years or so.
OK, we talked about making a will in our first podcast. Is that really the first thing to do? As some people I know claim, doing a power of attorney is even more important.
Well, if you listen to the great Martin Lewis.
That's who I was talking about.
Exactly. And Martin and I, as the pals that we are. And incidentally, I'm not speaking behind his back, but I'll say to you that off air, he is just as fast talking and knowledgeable and authoritative and dynamic as you see on the television screen.”
“He's a fantastic operator and a very wise person. And he takes the view that power of attorney is more important than a will. And I understand why he says that.
And it's because in Scotland, a government scheme, call it that, intestate, if you don't make a will, then your estate will still be processed, still be wound up, still go to your family, albeit not in the shares that you might have chosen by making a will. But something will happen. It will get sorted out.
Power of attorney is not like that. If you do not make a power of attorney, and you suddenly deteriorate and are unable to look after yourself, it's too late. You simply cannot go back.
If somebody has dementia or serious dementia and cannot, you know, they're not having good days and bad days, they're just ill and they cannot come back from that, then you cannot make a power of attorney for them. You also cannot as a wife, as a grown up child, as a member of the family or even a professional person, you cannot march into the bank and say, I'm this person's next of kin or lawyer or representative, I want to move their money about. The bank will rightly say, no, you can't.
Have you got power of attorney?
No.
So the alternative to that is this guardianship order that I mentioned, which is a long drawn out court application and a hearing in front of the sheriff, wearing his wig or her wig deciding, and potentially even refusing the application for guardianship, if there is a reason that they are unhappy with what's being asked. Whereas a power of attorney is essentially a private procedure where you go along to your lawyer, it gets drawn up according to your specification, signed, witnessed, certified, and then registered with the public guardian without anybody saying, no, this is legally unacceptable, or I want to ask you more and more questions. As long as you're guided properly by your lawyer, a power of attorney can be completed and registered.
And yes, I think I agree with my pal Martin. It is in some ways a more important, certainly a more urgent thing than it will.
Okay, let's just have a recap then. What is a power of attorney exactly?
Right, it's a letter. I'm going to use the phrase letter of authority. It really is that it's a note that you, as a person to write out, saying I, Austin Lafferty, wish to appoint Angela Roberts as my attorney for both what they call continuing purposes in Scotland.
That's what we call the financial and property side and welfare purposes. And that does what it says in the tin. You can decide if I'm to go into hospital or a nursing home or if doctors are to treat me, to be operated on.
I trust Angela Roberts to do all that, and I will sign it, it will be witnessed, and then a solicitor or advocate will certify it to say that I am of sound mind able to make that decision to appoint you, and that I understand the consequences of that. Now, that power of attorney doesn't need to come into play straight away. Indeed, the real best way of doing it is to make the power of attorney when there is no need for it, because you're in full command of your senses.
You're saying, this is for the future when I am no longer able to look after myself. But it's signed, it's registered with the public guardian's office, and make sure if you're Googling or checking or asking that it's the public guardian Scotland, because there's one in England and one in Scotland, and they are different organizations. So from our point of view, Scotland is where we are operating.
That's where our house is, or my house is, that you're going to sell for me when I go into the nursing home. That's where my bank accounts are, and that's where the public guardian operates for my estate. So once that's registered, it sits there unused.
I go about my normal life, but if I suddenly deteriorate, take that stroke or get ill, my dementia grows and I can no longer look after myself, you step up to the mark and show that power of attorney, registered power of attorney to my bank, use it if you're selling my house, speak to my insurance company and maybe the local social work department if I have to be placed in a nursing home. So it is a kind of comprehensive document of authority for somebody to look after somebody else.
And what sort of person would be the attorney, if you like? Is that what you call them? Yes.
I mean, it would be a spouse or a cohabitant, maybe. But what if they have died or they don't have capacity? Do you put a few people on or how does it work?
It's always a good idea not to just make it one person, because again, we're talking about death and destruction here. You could both be in the same car accident and both be hideously injured and maimed and unable to look after yourselves. Or you could both actually take on mental incapacity, dementia at the same time, maybe at different rates.
But just again, we've talked about risk management and planning ahead. Best to make it more than one person. And by that, if you are in an old fashioned kind of, you know, ma pa and the weans, then you appoint your spouse or partner.
But as a backup, appoint grown up children if you have them, or if you don't have children, then nieces and nephews. Somebody that you trust and you know can do the job. It doesn't need to be a family member.
It can be a friend, although bear in mind, if you're appointing one of your own friends, they're the same age as you. So, you know, it might not be a long term thing. It may be that you have a family who are friends of yours, where you know the grown up children and they could be trusted and are willing to do it.
There's a lot of things to think about with the power of attorney. But the principle thing is working out who are the best choices. But as you ask, and I agree with you, you should make it more than one person for that purpose of spreading the risk.
Now, you're saying someone you can trust. Now, I know there's been a lot of horror stories recently with people who are not necessarily the right people, who have access because maybe someone has dementia and has been persuaded. You know, it might not even be a family member.
It could be a church, elder or minister or whatever. So what are the risks of doing that? And appointing someone that then isn't who we think and trust?
Well, you're absolutely right. And prevention is better than cure. So you should do a lot of preparation and of actually speaking to not only the person or people that you're intending to appoint, but other people as well.
It shouldn't be a kind of secret thing where you have a hushed conversation with somebody, you sign them up as your attorney and then you hope everything will go well. You should, again, we've talked about risk management, you should understand that there are risks. And it's not even just that the person you appoint may run away with the money, they just might not be up to the job and they might panic or they themselves might then rely on somebody who's not up to snuff either.
There are a lot of risks, but I think, in every circumstance, every family is different, every person is different, so you can't make absolute rules. But a couple of things. One is talk to people in your family so that the right range of people know what you're thinking of doing, because you can be pretty sure that if somebody is unhappy about a potential choice, they will tell you.
They will make it absolutely known what they don't like about XYZ person. Speak to your solicitor and go through the choices with your solicitor. Now, your solicitor may not know any of the people you're talking about, but they will be experienced in these appointments and in the troubles that can arise.
And will talk sensibly to you and give you good advice about how to go about your individual appointment or your individual power of attorney.
Could you have your solicitor as a power of attorney?
You can do that. The downside of that is that if they're going to do it as a professional appointment, then there may be a substantial cost because there's quite a lot of work to be done potentially. And there's more work to be done if somebody has a portfolio of money and property, and things need to be done to finance care home fees and so forth, so that there's an ongoing programme of work.
You can appoint a solicitor as one of a number of attorneys, maybe even two or three, so that the solicitor is in the background only coming in when something needs to be done, or there is a difficult decision to be made, and maybe a casting vote is needed. So again, this sort of thing you and I have been talking about this for about five minutes. You should go and see a solicitor and talk about it for half an hour.
You should talk to family and even friends, trusted friends about it. So I think the point is that you shouldn't just jump into a power of attorney and sign up the nearest person you can think of. Do consider it, discuss it, work out what might go wrong, and also make sure that other people know about it.
For example, if you're appointing, you know, your eldest child, eldest two children, make sure they know the other three know about it or that other members of the family that you're in contact with know what's to happen. If all of that kind of goes wrong, then the public guardian has the power to investigate an attorney and to make orders discharging them from the job. And indeed, if relatives think that the attorney has been misbehaving or being careless or wilful or crooked with the money, they can actually ask the court for an intervention order, which is a bit like a guardianship order that we mentioned earlier on.
“But it's a way of stopping the attorney in their tracks from, you know, carrying out the...
Emptying the bank accounts.
Emptying the bank accounts. So there are backups. Now, actually, the worst stories have tended to be from England. And I don't say that as a sort of jingoistic Scottish who's like us thing. But the regime in England is different from what it is up here. We have fewer of these problems, but the problems happen.
And recently in the papers, there have been one or two stories about incapacitated individuals having their wealth taken away from them and it's been very distressing things to read. Those things can happen, but they're very few. But the way of getting, of avoiding them is good preparation.
When does it actually come into force?
The power of attorney comes into force in one of a number of instances. First of all, if somebody is, you know, deteriorating and you manage to get, you know, legally and appropriately their signature in a power of attorney before they really kind of sink into dementia, then it comes into force pretty much straight away. Indeed, the public guardian in registering the power of attorney will take months to do it.
That's no criticism of them. They're always overwhelmed with numbers. But if it's needed urgently, then the solicitor can go on to the public guardian and say, this one is an emergency. Can you please expedite it? And they will literally take it out of the queue, bring it to the front and register it and give it back to you almost immediately.
So if someone was in hospital, for example, that would be a scenario that...
Exactly. I mean, I've had them where somebody is suffering from a terminal illness, and they need somebody to take over almost kind of instantaneously with bank accounts and property and things, because either medically or indeed psychologically, they just kind of can't cope anymore. So the emergency power of attorney works there.
But in the ordinary run of the mill, you make the power of attorney, it gets registered and kind of put away in a drawer, a digital drawer, that is. And once it is needed, having been registered with the public guardian, it can then be registered, with a small r, with the bank, or with the local authority, the social work department. Basically, it can be shown to these organizations, and that makes it effective so that the attorney who is appointed can be recognized as the person entitled to make the decisions and sign the things.
I had one where a person I had known many years ago, and I had done legal work for, and then the next I heard was these many years later, I was told she was in hospital and unable to look after herself. So I had to scramble into action. I was the attorney.
She didn't have family. I was the attorney. I am the attorney.
I had to scramble into action. And one of the things we did was we had to register the power of attorney with her bank. And I physically, personally had to go along to a branch of the bank, present myself.”
“Now, they knew me anyway because it's local. And they said, Oh, hello, Austin, how are you doing? I said, Well, I'm here for a different thing today.
And I show them the registered power of attorney. They put it into their system. So I am able to access that lady's money for her benefit and pay nursing home fees and other bills.
So when the power of attorney was made, it was years and years and years before she would have ever remotely needed it. But when it came to be needed, it was already registered by the public guardian. And therefore it could be kind of copied on almost to the bank.
So that's point number one then for getting old, do a will and do a power of attorney. Do you usually do them at the same time really?
Well, that's a matter of personal choice for people, but it is a natural counterpart to doing a will is doing powers of attorney. And people very often are ready to do it, ready to talk about that once they've got in their mind what they're doing about their will.
So next on my list is inheritance tax
“Oh, wow, yes.
If someone wants to leave their home to their children, will they be subject to inheritance tax and are there ways to minimise it? Now, I'm not looking to break the law, but what can we do to stop our relatives having a huge tax bill?
Sometimes nothing, because HMRC, who are the tax authority for inheritance tax, are not daft, and they've been around a long time, and they know all of the usual ways of trying to avoid tax. And by the way, I say avoid tax. Avoiding tax is fine.
Evading tax is illegal, and that's a distinction that very often is not understood well. I mean, to be fair, the Inheritance Tax Rules are not all one-sided. They're not fully geared towards raiding your bank accounts the moment you pass away.
There are exemptions and allowances. Broadly, it's this. Each person individually has an allowance of 325,000 pounds.
So if your estate is less than that, there's no tax. If your estate is more than that, then it's broadly 40% of the difference between 325 and whatever the total is. If you're either a married couple or civil partners,then when the first partner or spouse dies, their 325,000 passes on to the other.
So you're already at 650,000 when the second spouse or partner or parent dies. Now that's on the assumption that the first spouse that died has left all their estate to the surviving spouse. But there's another allowance which is more germane to your question.
For the house, if as parents you are leaving the house ultimately to the children, and it can be children, adopted children, stepchildren, grandchildren, as long as it's kind of going down the genetic line, then there are additional allowances of 175,000 pounds for each of the two parents. So those of you who are quick at arithmetic will have worked out that the 325 plus 325 plus 175 plus 175 is basically a million pounds. So for most ordinary family type situations, there is a maximum of a million pounds allowance or exemption in inheritance tax.
But when you're making your will, the solicitor will ask you about the makeup of your estate because there are all sorts of pitfalls and potential problems that you can get into by not having an eye on inheritance tax from the moment you start thinking about a will. For example, if you decide, and I know we're going to talk about care costs and moving properties around to the family, I'll give you one small example. If you have a house and you think, oh, right, I'm going to avoid inheritance tax by putting that house into a trust and the trust is different from me legally, so when I die, there'll be no inheritance tax on the trust.
Now, as a bold statement, that's correct. But if you do that and don't live the seven years after creating the trust, and in effect, you've left the house to the trust and not to your children, then you won't get the two sets of 175,000 pounds allowance, so you've shot yourself in the foot. And I give that as one tiny, tiny speck of an example out of the hundreds of millions of possibilities.
But the point is this, making a will on its own is not enough, is never enough. You've got to tell the solicitor, the solicitor's got to ask you what your estate is made up of. Because if it's clear that there's no inheritance tax, exposure is the word we use, you know, your house is worth a couple of hundred thousand pounds, you've got a hundred thousand pounds of savings, then even if it's just one of you, that's not, you're not going to go over the threshold.
But if you've got businesses and properties and a few cars and big savings, and your estate when brought down to a simple arithmetical sum is more than the inheritance tax threshold, that's the time to think of the possible ways there are of legitimately avoiding inheritance tax. One of those is giving away gifts of money to your children. One of those may be transferring property into a trust or to even to your children, but we'll talk about that specifically.
But you've got to do these things, understanding what the risks are and what the downsides are. But the sequence of events is decide that you're going to make a will, see the solicitor, discuss what you want in the will, discuss what's in your estate, and look for any inheritance tax issues, either for or against.
OK, you mentioned there something I was going to ask, because often people think, should I transfer my property to my children, you know, before I die? What are the pros and cons of that? Presumably, they could kick us out, though, if they're, you know, if we suddenly fall out and they own the house.
There's all sorts of downsides to it. And people do go to this as a kind of instinctive thing. Oh, right, I'll pass the property onto the children, the house onto the children, because they're going to get it anyway.
And, you know, that's got a logic about it. And in close loving families, that it can seem like a perfectly decent idea. And actually, in some ways, it is, in some ways.
But the downsides are considerable. And again, talking about risk, risk management, these are the risks. Some of them might not happen, but if they do, you're stuffed.
And those risks are, your children might fall out with you, as you say. Also, the children themselves may run into difficulties. They may die, and this house is in their estate, not yours.
So it goes under their will, or goes to their children, or their family. And it may be different from, you know, if you and your husband were divorced or
“you and your wife were divorced, and so there's kind of two separate families, and your joint child dies, then, you know, your property could go to the other family. There's all sorts of risks there.
The child not dying, but could get into financial trouble and go bankrupt or be sued, and your property will be arrested along with everything else by their trustee in bankruptcy. It could be simply that they, the children, have a kind of adverse tax situation, or have all sorts of pressures, or they may even want to put a mortgage, or have to put a mortgage on your property that you're living in. Another downside is, and again, this is only for those people for whom inheritance tax is a live issue, by giving away the property and still living in it, you're getting a benefit in kind, which is a taxable benefit, which if everything goes in a certain way after you pass away, may actually put tax back onto your estate.
You think you've saved it, but there's a tax issue, and it may be a tax issue going back all the years from when you transferred the house into the into the children's name, and that could be quite a long time. So, you know, already we're seeing that there are complexities here which need to be discussed with a solicitor and accountant or both. Another downside is when we come to talk about care costs, this will come into it.
If you give the property away, and we mentioned the seven year rule for inheritance tax, but if you give the house away and then have to go into care home and you're assessed by the social work department who say, right, Mr. Lafferty, what assets have you got? And you say, well, I've got a bank account and I've got a bit of insurance and I've got a car. And they say, oh, don't you own a house?
I'll say, no, I don't own a house. And that would be correct. That would be legally right.
That would be accurate. Ah, but we looked back in the registers and you did own a house up until three years ago when you transferred it to your son and daughter. Why did you do that?
And I'll say, well, I was just planning. I was just doing some tax planning and just a general family reorganization. And they say, but that was the same time that you were diagnosed with dementia for the first time.
And I'll say, yeah, yeah, that's a coincidence. And what they then say is, we consider that you have deliberately disposed of this property to defeat an assessment, a capital assessment. And although they can't bring the house back to me, this is the worst case scenario, they can't bring the house back to me and cancel out the transfer to my children.
But they can say, we are going to assess you on the basis that you still have that capital, and therefore you do not qualify for the means tested benefits, which you otherwise would qualify for. So it's up to you. Either you cannot get into the nursing home or your children will need to kind of cooperate and pay for you.
Or what they sometimes do is they say, again, this has to be with the cooperation of the children, we will put a charge on your property, a security on your property, so that when you eventually die and the property is sold, the money will come back to us. So what seems to people, maybe Googling it, saying, right, I am going to ring fence my property by giving it away to my children, there are all these risks. And nine times out of ten, we say to people, don't do it.
You did mention care home costs there. And I'm just wondering if one member of a couple who've got a shared home, it's maybe a spouse or a cohabitee or whatever, does have to go into a care home. What happens to the other person?Do they have to pay anything? Or how does that work out?
The capital value in the home is discounted or ignored at that point. If you have two people who live in a property together, now they don't need to own it together. One of them can own it, and the other one just lives there as spouse or partner.And it may be that it belonged to the person that owned it before the two got together. They got together and just never bothered transferring the title into joint names, and absolutely fine. The fact that the one that's not going into a care home is still living in the house as their permanent residence, that is the crucial element that removes the value of the house from the assessment.
Now, it's kind of more even than that. If, for example, the parents live together in their own home, and one of their children also lives there, perhaps that has been a child with disability, or there's somewhat been some other fundamental reason why they need to keep or that that child, grown up child, needs to still live in the family home. They're also a permanent resident, so in that situation, even if both parents have to go into care, the house is not taken into assessment.
But in the ordinary situation, well, is there such a thing as an ordinary situation? Let's say the old fashioned situation where it is, as I said earlier, my parents, the weans, the weans are away with their own houses and families elsewhere and come to visit at weekends, etc. But it's mum and dad still live in the house.
Mum dies and dad lives in the house on his own. If he then has to go into care, that house will come into assessment because there isn't another permanent resident in it. And the children must kind of look on and say, well, that's our inheritance getting chipped away because it had to be sold and the care home costs are gigantic.
Even without the benefits in Scotland, there are benefits that are automatic, but there are also means tested benefits, and the care home fees are kind of part of that. So with the huge amount of money that we're paying every week or every month, the value has just been chipped away from what's left of our parents' capital. So if an elderly parent keeps their physical health long enough that they live in a nursing home or a care home for a long time, then it can be ruinous on the finances.
But, again, I said earlier on that HMRC are not daft. The assessment people, the social work departments of the various councils that deal with care home placement, they're not daft either. And indeed, there is a big booklet which I have in the office, which gives all the rules that there are for assessing adults going into care homes.
And the section on the loopholes and the little curlicues of, you know, how you assess money and property are very clear, that if somebody goes into care and has disposed of a property for the purpose of avoiding the care costs or the care cost assessment, then that will be struck down.
So there's not really anything you can do about that then?
Other than planning well ahead. And I've had clients who have come in in their 50s or even 60s and say, we're looking ahead, we are physically well and fit just now or we're still in business or we're still working or, you know, we've only just got a shot of the youngest of our grown up children married away or off working in London. So we are now assessing things we want to make wills and we want to talk about future inheritance tax and care costs.
In that situation, it can be perfectly legitimate to move property and money around and to put things in trust where there is at least a good reason for doing it. You're not facing going to care, getting dementia, becoming ill, having to worry about passing away. Yes, we could get any of those things tomorrow, but we are in good health.
We are in a good place financially, mentally, property wise, career wise. So we've decided we're going to create a trust and put money and property in it. And in that situation, it should be enforceable.
And if seven, eight, nine, ten years later, there's a care assessment situation, you can legitimately look back and say, I did this for the right reasons.
OK, so we've talked about powers of attorney, wills, care home costs, inheritance tax. What about if you're not bothered about passing on anything to your kids and you want to release some money from your house, from your property for your retirement? You want to go on cruises.You want to do various things.
Yeah.
That's equity release, isn't it?
That's right. And it's a perfectly legitimate thing to do. It used to have a bad name, equity release, because, you know, your images of sharp salespeople coming round and signing old folk up and them turning around and saying, I don't know what's happened.
It's highly regulated now. And in fact, I don't deal with mortgage arrangement, but I know some good mortgage brokers who specialize in this and the industry is reasonably well policed. And the advice would be, if you are thinking of doing it, see your solicitor first, because it's the solicitors who are in charge of the actual mechanics of it.
And the mechanics of it are almost like buying your own house again, in the sense that you go to a lender and the lender lends money on the security of the house, and you grant what we call a standard security, which is a mortgage over the house, which is registered with the title deeds. The kind of heavy lifting is in getting the best deal, working out how much money to borrow, what the repayment terms are, and whether there is an actual repayment, or it's just maintaining the interest until you pass away, when your house is sold and the lender is paid back. It's not for everybody, and before you make any decisions, you should learn about what it means and what it would mean for you in particular.
And that's why I say go and see your solicitor and talk through it. Then speak to a mortgage broker, a specialist, preferably mortgage broker or lender, and work it all out before you take things forward. But if you decide to go ahead, then make sure that it's the right deal for you.
But at the end of it, what you should have is money in your bank and a property that is securely yours. You cannot be evicted from it. And you then put the money to good use and, you know, carry on from there.
What about if when you do die and the whole thing is then goes to the lender, as you say, what about if the value of the property doesn't actually cover that? Is that ever a scenario? Would your children then have to pay some money back?
If that happened, then it wouldn't be your children who would pay the money back. It would have to come out of your estate. But there's two things at play here.
You would not willingly or easily sign up to a deal that ever had any loose ends at the end of it. So that the risk would be with the lender if the money they got from selling the property after you died was less than the loan outstanding. In a way, it should be their responsibility to gear the lending properly.
Now, the reality is, that's the first thing. The second thing is that the reality is the lenders are smart themselves and they've done it a million times before. They will have the property surveyed or valued, and they will calculate the amount you can borrow based on the value of the property, so that they're lending less to a degree that even if you live for X number of years, and they'll have done all the arithmetic at their end, then they will still get their money back.
And of course, bear in mind, you're still paying interest usually on the deal, so that you're kind of topping up. What's the opposite of topping up? You're keeping the loan kind of down to what was borrowed initially.
And the third thing I think to say is, realistically, most property goes up in value over time, and whatever the value was when you were given the loan, and the loan, bear in mind, was geared to being less than that, then when the time comes for the loan to be repaid, the value of the property, whether it's your executor of your will, selling the property, or indeed the lender themselves selling the property, then the chances are that there will be a good equity left over after repayment.
Now we've sorted out what happens to our house, any house that we own, any property that we own. What about other financial assets? I mean, you do hear the saying you need to sort out your affairs.
Well, start with that old-fashioned bit of paper and a pencil, and write down everything that you have, and although we are talking about our assets and our will and our power of attorney and so forth, pensions sit slightly outside your legal estate. They are essentially a discretionary asset which somebody else owns, the pension trustees and pension administrators, and you are the beneficiary of that, and your family may be. We really should liaise with the pension administrators and say to them, if I die, what will happen? Who will get my pension benefits? What do they need to do to access them? And is there anything else I need to do now to make that secure?
And the one thing that you really do want to make sure you've got is a letter of wishes, sometimes known as a nomination. There may be a part in the forms that you've complete when you're setting up the pension or updating it that create a direct nomination, and that's why I say letter of wishes, nomination are kind of the same thing. If there's not, then either you yourself or with the help of the pension people, or indeed with the help of your lawyer, can do a letter of wishes setting out what you want to happen when you die.
But kind of check, you know, before going to that expense or effort, check with the pension people those questions that I suggested that you ask, and on the back of that, work out what, if anything, you need to do. The same is true with some insurance policies, because very often you hear about policies, insurance policies for your life being set up in trust. And that does what it says in the tin.
It means that the insurance company have added a kind of feature to the policy. It's on your life and will pay out on your death, but it is in trust and therefore beneficiaries are listed, and it may be your children or your spouse or both. And that's something, again, if you've got an insurance policy or any financial asset, go back and check with the people that are running it for you, with the bank or building society or insurance company.
What is the status of that product? Is it in trust or not? Do you need to do anything with it to either put it into trust or to discuss that?
Okay, and what about things just like everyday things like your bank accounts, credit cards, any of these kinds of things? Should you be leaving a list of passwords or something or?
Oh, for God's sake.No, don't do that.
Well, I say no, don't do that. And I'm just, that was really just for dramatic effect. The answer to that is yes, you should, but not a list of passwords.
There are lots of online apps and features and products where you can kind of vault things like passwords and so forth. But from a lawyer's point of view, my interest is in authority, the authority being given to the executor or to somebody after you pass away, so that that person can access your digital assets. The will should really give a specific power to either the executors or to somebody else, doesn't need to be the executors, it can be a family member or a friend or something, to interact with the digital companies in order to give them authority to either bypass passwords.
Because strictly speaking, your account with whoever it is, Apple or X or, you know, Facebook comes to an end when you die. So strictly speaking, even your executor doesn't have authority to use your username and password. You should add in a clause saying, I hereby give immediate authority to my executor or whoever to, you know, access all my online accounts, whether bank, insurance, work even, and make as comprehensive a list as possible, even name the companies.
That will may just, it may just be possible to present a certified copy of that will to the company and they will then grant access. Put in a practical way for those left behind to get into those accounts, but also give legal authority by way of a clause in your will.
Well, I think we've covered quite a lot here. You've talked about the social media accounts as well. That was my last sort of question. Is there anything else you want to add that we haven't covered?
Make friends with everybody before you die. Don't leave any enemies. Don't leave loose ends.
And actually, although I am sort of doing that as an and finally lighthearted thing, there is a serious element to that. Depending on how you prepare your will, do bear in mind that people are not going to know about it until you die. It's a private thing between you and your lawyer, and it's put away in a cupboard and kept secret.
It's not, you don't need to register it anywhere. So it's essentially an absolutely private document and arrangement. When you die, death brings out what's the best and the worst in people.”
“If you've left something, which is in effect a ticking time bomb for the family, for example, you've got four children and you leave three of them the same and one not, then that can be a recipe for terrible in-fighting. And even if you think you're doing the right thing, take time to consider how those who are left are going to deal with your death. They will be grieving if they liked you and miss you.
They will also all have to deal with each other. And if you have left a provision, and I'm not saying that three getting the full whack and one not, I'm not saying that's wrong, but either don't do something that you know is going to cause a fight, or explain it all either in the will or in a separate piece of paper that's not a legal document, but just is a note that goes in with the will. Lots of people do that.
But have a kind of moment where you think, how is this going to play out? Do I want to do something that is possibly going to hurt people?
Maybe I do, for a very good reason, but only do what you have to do.
Try and think of the best way of keeping everybody as sweet as possible, and remembering you as positively as possible. Now, I may say all this because I'm a coward, and I always say, I don't know why I became a lawyer, because I am a lover, not a fighter. But I see this again and again.
People making their wills. Very often, it's like the kind of Catholic confessional. They come into my room, and they tell me things that nobody else knows.
And I've got to try and help them with that. And more often than not, looking back over 43 years, whatever it is, I can say, I've sometimes counselled people, yes, you could do this, but think of what that's going to mean and how that's going to potentially hurt people. Think of another way of doing it, and maybe get the same result, but going about it a different way.
So I'm sorry for that very long answer to your final question, but that is the extra thing. We've been talking about property and money and houses and insurance and pensions, and those are all very important, but you're talking about the end of a life, and with Power of Attorney, the active life being removed so that you become, frankly, a burden. I always reflect on the James Bond film Casino Royale, when the plot is about James Bond playing cards in Montenegro against all the villains, and somebody asks him, so James, why are you the best poker player in MI6?
And he says, it's because I don't play my hand, I play the other person's hand. And when you're making a will, that's what you should do.
Austin, thanks very much.”
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