Buying House Off Elderly Parents To Help Them Financially

[mikthe20]

Would appreciate some assistance on situation which has cropped up with my in-laws and my brother-in-law and my missus has asked me for my opinion.

My in-laws are elderly (in their 80s) and in OK health, but not great. Still have £50k mortgage (I know, I know!) and currently paying approx £200 per month interrest only (I know, I know!). No equity release fortunately.

They are struggling financially, but similarly my father-in-law appears to have a propensity to piss money up the wall.

My brother-in-law (who I don't trust for good reason so am suspicious of his motives) has suggested he buy the house off them using a BTL mortgage. The cash they receive has the proviso that it can only be used to pay for care home fees in future (to stop FIL blowing the dosh). He would get a BTL mortgage to do this.

My main interest is on making sure my in-laws are better off from this (my mother-in-law is a warm-hearted, dignified but naive woman) and that they don't get ripped off by my BIL.

Let's say they get the flat valued at £200k (rough guess). BIL buys it for say £150k. Mortgage is paid off and hence in-laws have £100k cash (but they can only spend it on care home fees - not sure how this can be enforced).

My main question is this: Should one or both of the in-laws subsequently have to go into a care home, would they have been better off owning a property or renting? I believe if one of them has to go into a home then the council can't force the sale of the house in which the other is living in order to pay care costs? In this context, are they better off with £100k in bank and no debt but renting, or £200k property and £50k debt?

Other questions:

Will the in-laws be forced by Inland Revenue rules or BTL mortgage requirements to pay a rent higher than their £200 per month mortgage payments?

I presume my BIL wants to do this to stop the council getting their mits on the flat should my in-laws go into a home as well as getting it cheaply and (I hope) trying to reduce the burden on his parents, but I'm not convinced this wil be best for them.

My gut feel (and also to avoid family disputes) is that I and my BIL should just pay their IO mortgage for them each month and take care of the debt when the flat is sold either through probate or because the council has enforced sale to pay for care home (is that rule changing? What is Tory policy?).

Any other thoughts or advice? Apologies for the long post.

[SarahBell]

80 and a 50k mortgage still? Northern Rock?

Insane.

[mikthe20]

80 and a 50k mortgage still? Northern Rock?

Insane.

Yeah, I don't know who the mortgage company is but it's unbelievable. Apparently the mortgage company has also recently offered to extend the fixed rate for another 2 years.

[Driver]

I would be more worried about the BIL going tits up and the house being repossessed from under the parents.

[mikthe20]

I would be more worried about the BIL going tits up and the house being repossessed from under the parents.

Hmm... good point. BIL is on loadsamoney though and public sector (but also with humongous mortgage of his own).

[iLegallyBlonde]

I would be more worried about the BIL going tits up and the house being repossessed from under the parents.

That was my first thought, I wouldn't mind betting that the flat is used to secure something else before they die/go into a home.

But back to the orginal question, there's not point in either of you taking the flat one because what ever cash they get will go towards nursing home fees.

The only way the whole family can benefit is if they sell the flat and split the profits amongst the children and then rent off somebody else unrelated, as chances are they will be entitled to housing benefit.

[juvenal]

This is a minefield, and if your BIL thinks he can pull a fast one on council care funding officials he's mistaken.

Firstly, if one of a married couple needs to go into a care home on council funding, the marital home cannot be taken while the other remains living in it.

The parents are in their 80's. Only 6% of people need care home care (around 400,000 in UK). Any selling or below market rent strategies by the BIL would be seen as 'deprivation of assets' moves by the Council, who know every trick in the book.

Any financial arrangements to avoid or ameliorate care fees should have been made years ago when parents were in full health. This may have involved setting up Trusts, buying Insurances, changing Ownership status etc.

My feeling is that BIL is trying to pull a fast one, and get a cheap property with the deeds in his name. You won't see him after that.

You need expert advice on this complex field. Start with Saga website, and go from there. Observer Cash section did an informative series of relevant articles starting 17.5.09 with 'Don't Bet The House on Passing Your Lifetime's Savings to Your Children'. Your post raises far too many questions to be dealt with here.

By the way, £100K would pay care home fees for one person for 3-4 years maximum, in a middling care home.

[Freeholder]

If the plan is simply to help the elderly couple why not just pay off their mortgage. The amount of borrowing needed would be much smaller than under the proposed arrangement. In exchange for this the BIL could acquire a 1/4 share in the flat. The flat could be held under a trust for sale the purpose of which was to provlde for the couple either as accommodation or as a source of funds.

[juvenal]

That was my first thought, I wouldn't mind betting that the flat is used to secure something else before they die/go into a home.

But back to the orginal question, there's not point in either of you taking the flat one because what ever cash they get will go towards nursing home fees.

The only way the whole family can benefit is if they sell the flat and split the profits amongst the children and then rent off somebody else unrelated, as chances are they will be entitled to housing benefit.

If they did this, and needed care homes within the next few years, it may be seen as deliberate disposal of assets. The council can track and reclaim the proceeds of the sale, even from others who received some of that money.

[ScaredEitherWay]

Hmm... good point. BIL is on loadsamoney though and public sector (but also with humongous mortgage of his own).

All that glitters is not gold.

[tim123]

My gut feel (and also to avoid family disputes) is that I and my BIL should just pay their IO mortgage for them each month and take care of the debt when the flat is sold either through probate or because the council has enforced sale to pay for care home (is that rule changing? What is Tory policy?).

Councils can't enforce a sale whilst the other partner is still living in the property.

Overall, as long as the partents are given a suitable tenancy, and the BIL can be trusted to pay the mortgage, I can't see much wrong with the proposal, but I can't see any benefits either.

tim

[jackalope]

. Mortgage is paid off and hence in-laws have £100k cash (but they can only spend it on care home fees - not sure how this can be enforced).

I don't think it can be enforced. People don't change and especially people in their 80s don't change. FIL will p!ss it up the wall.

[iLegallyBlonde]

If they did this, and needed care homes within the next few years, it may be seen as deliberate disposal of assets. The council can track and reclaim the proceeds of the sale, even from others who received some of that money.

Depends how close it is to when they go into the home, it's unlikely they'd try to reclaim it, everybody seems to get away with it, no reason why the OP should be any different. We were actually advised to do this but would have meant living with the Holy Terror which wasn't worth £100k

[juvenal]

Depends how close it is to when they go into the home, it's unlikely they'd try to reclaim it, everybody seems to get away with it, no reason why the OP should be any different. We were actually advised to do this but would have meant living with the Holy Terror which wasn't worth £100k

If everybody's getting away with it, why are 70,000 homes annually being sold to fund care home fees?.

As council budgets (and their black-hole pension funds) get ever more strapped, do you really think they are going to disregard the disposal of six figure personal assets? With every care home resident funded by the council costing £300-500 a week?

I don't think so. This is one area that will get ever-keener scrutiny.

[mikthe20]

This is a minefield, and if your BIL thinks he can pull a fast one on council care funding officials he's mistaken.

Firstly, if one of a married couple needs to go into a care home on council funding, the marital home cannot be taken while the other remains living in it.

The parents are in their 80's. Only 6% of people need care home care (around 400,000 in UK). Any selling or below market rent strategies by the BIL would be seen as 'deprivation of assets' moves by the Council, who know every trick in the book.

Any financial arrangements to avoid or ameliorate care fees should have been made years ago when parents were in full health. This may have involved setting up Trusts, buying Insurances, changing Ownership status etc.

My feeling is that BIL is trying to pull a fast one, and get a cheap property with the deeds in his name. You won't see him after that.

You need expert advice on this complex field. Start with Saga website, and go from there. Observer Cash section did an informative series of relevant articles starting 17.5.09 with 'Don't Bet The House on Passing Your Lifetime's Savings to Your Children'. Your post raises far too many questions to be dealt with here.

By the way, £100K would pay care home fees for one person for 3-4 years maximum, in a middling care home.

Excellent advice - many thanks for that, really appreciate it.

Thanks all for comments - knew I'd get a good response from those on HPC!

[The Masked Tulip]

1. A solicitor friend of mine has told me that he has seen far too often children, who having had their parents give them their home, then turn their parents out onto the street. Disgusting! My solicitor friend has seen it so often that his firm no longer does this kind of work unless there are serious mitigating circumstances.

2. I have personally seen how nasty siblings can be when a parent is ill or has recently passed on.

As my solicitor once told me, where there is a will there is a relative.

I would suggest that you take the advice of a good solicitor who is experienced in this - note the bold as some solicitors are out of date and touch with this because the laws changes so often or, worse, they have their own religious/moral code which can do more harm than good.

When my Mother looked into this many years ago the idea of setting up a trust to safeguard the home - again, this was many years ago and the law has undoubtedly changed all the time. My solicitor told me that the government repeatedly moves the goal-posts on this and deliberately so in order to make as much tax revenue as possible.

I am no legal or tax expert but I believe, could be wrong, that if you gift anything over 3K to someone and then you die within 12 months then the recipient has to pay 50% of the sum to the tax-man and that this amount of tax declines as a percentage over 7 or 9 years. So, for example, if a parent gifts a house to a child today and then passes on tomorrow then the child would owe 50% of the value of the house to the tax-man.

This subject has come up numerous times on here in the past.

I always strongly suggest seeing a good solicitor and, frankly, if you have the slightest doubt about whether the solicitor is any good or not then go and see a different one!

[mikthe20]

I always strongly suggest seeing a good solicitor and, frankly, if you have the slightest doubt about whether the solicitor is any good or not then go and see a different one!

Many thanks for your insight TMT (and the PM). I will get proper advice. Shame things have to come to this but that's life (and death!) I suppose.

[mikthe20]

1. A solicitor friend of mine has told me that he has seen far too often children, who having had their parents give them their home, then turn their parents out onto the street. Disgusting! My solicitor friend has seen it so often that his firm no longer does this kind of work unless there are serious mitigating circumstances.

At first I ignored this bit as even my BIL wouldn't do this I believe. However, I have no doubt that his wife would boot them out without a moment's hesitation should my BIL kick the bucket. Thanks for pointing that out.

Edited August 20, 2009 by mikthe20