This is a question that we are now frequently asked. With the possible introduction of significantly higher probate fees in May, it is likely that this will become an even more popular question.
The significant increase in probate fees for some estates means that people are looking at ways to avoid the charges.
Probate fees aside, sometimes people simply wish to alleviate themselves of the worry and responsibility of owning/looking after a property. This may sound like a great idea in theory, but there are some very important considerations. Transferring your property to your intended beneficiaries during your lifetime is not a decision that should be taken lightly and here are some things to bear in mind.
If the intention is to continue living in the property, then any transfer should almost certainly be accompanied by some form of trust deed in order to protect your right to occupy and potentially also a restriction on the title.
Loss of control
Perhaps the most important thing to consider is loss of control. By transferring the property it is no longer legally yours. You can no longer deal with the property as legal owner. You would not (for example) be able to mortgage the property or sell the property without the agreement of the new owners.
In transferring the property to third parties, the property becomes part of their own assets. What happens if they go through a divorce? What happens if they become bankrupt?
Some people often wish to give their home away to reduce their estate for inheritance tax purposes. If you are still living in the property, or indeed have a right to be living in the property at the date of death then there is likely to be no inheritance tax benefit gained in transferring the property, as for inheritance tax purposes the property is still treated as part of the value of your estate. This is referred to as a ‘gift with reservation of benefit’.
Some people wish to transfer the property to their children in the hope that this will avoid the need to pay care fees. There is a possibility that the Local Authority will look into why you have disposed of your house. If they feel that you have disposed of an asset with a view to avoiding payment of care fees then they may well treat you as still owning the asset when making their financial assessment. This is referred to as ‘deliberate deprivation of assets’.
Capital Gains Tax
One further point to note is that there may be a Capital Gains Tax consequence to transferring the property, although this is usually more a problem for the recipient of the property to consider.
The above is not an exhaustive list. The decision as to whether to transfer your property is complex and all parties involved should always seek independent legal advice.
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