One of the most frequently asked questions we get when dealing with Wills and Estate Planning is how to go about transferring a house to another family member, usually children whilst still alive. So the family member legally owns it but they continue to live there.
This blog post addresses why this can be a bad idea.
The process itself is very simple, and basically involves filling in some forms and submitting them to the Land Registry.
But the legal implications are far from simple, and can lead to a lot of pot holes that can cause all sorts of difficulties.
Why transfer your home in the first place?
There are many reasons why someone would wish to transfer their property including the security of knowing the house is with the person you wish to leave it to and Inheritance Tax issues, but the overwhelming reason is to try and avoid paying care home costs.
In England and Wales you will only be required to pay for care home costs if your capital is over £23,000 (England) or £22,000 (Wales) This capital includes any equity in your home. This area is complicated, and very long winded, and if you are thinking of doing this you do need to get in depth advice which take into account all of your personal circumstances, such as the fact the Council will not count your home into your capital if your spouse or civil partner is still living there. The Council also has numerous schemes and calculations to work out the payments ~ for more information see:
What can go wrong?
Once you have made the decision to transfer the house to someone else it belongs to them. They can do whatever they like with it, including sell it, and, importantly, it becomes part of their assets. This has various implications.
First is the incident that inspired me to write this post. Divorce. A client came to see us last week with marital problems. Some years ago his mother transferred the house to him, and now he wanted to transfer it back.
If you own a property it will be counted as part of the assets that are taken into account in a matrimonial settlement. So if you transfer your property to your children and one of them gets divorced there will be a lot of problems. The house may have to be sold, even, if the divorcee child cannot afford to buy out any part of the value that is awarded to their former spouse.
Divorce can be unexpected, and at the time of the transfer there may be no marital difficulties in the family whatsoever. But they can, and do, happen and you need to be very careful when transferring property because of this reason.
Second is bankruptcy. Again, this is often unexpected and can occur after years of earning a very good living, as the recent financial downturn has shown. If the house is transferred to a bankrupt, either in full or in part, their share can be taken into account by the Liquidators as part of the bankruptcy. This can lead to similar problems that can lead to the house having to be sold.
This is just a brief overview of potential problems that can arise. If transferring a house it is vital to seek legal advice that will fully explain to you to all the potential downfalls and implications that people don’t consider or realise the full weight of.