Is transferring my house to my children a good idea?.

As private client practitioners, we are asked almost every day by clients about transferring their home into their children’s names. Generally, this is not a good idea and this blog will briefly explain some of the reasons why.

Care Fees

Often clients think that transferring their property to their children (or into a trust for the benefit of their children), will protect their property from being sold by the local authority to pay for care fees should the survivor of them have to go into care. Unfortunately, whilst this may have been successful in the past, these days it generally will not succeed and that is irrespective of how many years have passed – there is a common misconception that if the gift had been made more than seven years ago this would be effective. But, however, many years have passed, if the local authority is of the opinion you have intentionally deprived yourself of assets, they could reverse the transaction and order the sale in any event.

If you are concerned about care fees, a solicitor will be able to speak to you about potential strategies for your will that may be able to ring fence some of your estate from care fees.

Inheritance Tax

Another reason a client may want to transfer their property to their children (or into trust) is to protect against the payment of inheritance tax.

First, we would always recommend speaking to a solicitor who can advise on the current inheritance tax rules and whether the payment of inheritance tax is actually relevant to your estate. In many cases, inheritance tax will not actually be relevant and there is nothing to worry about from this point of view.

Second, if you transfer the property but continue to live in it as before (ie rent free) then the property will still form part of your taxable estate. This is called a gift with reservation of benefit (GROB). You may be able to prevent this by paying a full market rent for the property but most people will not want to pay a market rent to stay in their own property, and if you are considered to have continued to benefit from that property in some other way, then this would still be a GROB. Further, if the full market rent stopped at any point (or was not increased in line with standard rental payments), the value of the property (or a proportion of it) would immediately fall back into your taxable estate.

Security

Finally, by transferring all or any of your interest in your property to your children, you are potentially putting your security at risk. If your child were to divorce, their share of your property would be taken into account in any financial settlement. If your child were declared bankrupt, their share of your property would be considered by the trustee in bankruptcy. If your child were to die before you, their share of your property could be inherited by someone you would not wish to own it. All of these instances could lead to your home potentially having to be sold to release equity to pay third parties, even if this would leave you without anywhere to live.

Therefore, generally speaking, it is not normally wise to transfer your property to your children. If, however, you are concerned about liability for care home fees, inheritance tax, or anything else mentioned above, please do get in touch and we would be happy to discuss your particular circumstances with you and provide you with specific advice.