The Transfer of the family home by an elderly parent

1.Inheriting the family home

Most parents want their home to be inherited by their children. Sometimes to ensure that a particular child will get  the property they will look to transfer it to them during their lifetime.  Such property transfers can happen for a number of reasons: –

  • The parent and child may share the house, and be joint owners of it;
  • The house may be in the sole name of the parent but it has always been the home of the child;
  • The transfer may be done with a view to avoid Nursing Home fees;
  • The transfer may be done to ensure that one child receives the property and other children don’t.
  • Avoiding Inheritance tax

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2. Reasons for favouring a child

The family home is often the biggest asset and leaving it to one child in preference to others can occur for a multiplicity of reasons.   It may be that the child in question is of considerable help and assistance to the parent whereas other children do not help at all.  A child may have fallen out with a parent and have had nothing to do with them for a number of years.  A child may have mental capacity issues which means that they are not very good as dealing with property.  For these reasons the parent wants to exclude them from inheriting as share of the property.

Whatever the reason, where a property is transferred solely for the benefit of one child to the exclusion of other children, either before or on death, there is always the possibility that the children who have been left out of the transaction will seek to challenge it.  Many children automatically assume they are entitled to a fair share of their parent’s estate regardless of their relationship with them.

3. Challenging a parent’s decision

Such challenge is often based on the allegation the parent was elderly and/or in a poor state of health or both, and that they did not have the mental capacity to understand what it was they were doing.  Or if they did,  they didn’t fully understand its implications  This is often referred to as lacking knowledge and approval.  Even where a parent is not in poor health it is always open to suggest that anybody who is over the age of say 75, is suffering from a loss of mental capacity.  Whether they are suffering from such a loss or not the likelihood that they may be increases with age and it is always open for an allegation to be made even if it is unfounded.

Or it may be alleged that undue influence has been brought to bear on the parent or that the parent’s mind has been poisoned against a particular child by untrue or exaggerated claims against them.

4. Does the parent understand the implications of their actions?

When dealing with such transactions, it’s important to ensure the parent fully understands the implications of what it is that they are doing.  A record should also be made of the reasons behind their decision.

5. Obtaining a medical report

One of the first questions which arises after a parent’s death, if their mental capacity is challenged, is whether or not a medical report was prepared.  The courts refer to a Golden rule which states that for any person who is elderly or in poor health a medical report should always be prepared to confirm they had mental capacity.  Although the provision of a medical report doesn’t guarantee court proceedings will be avoided, its presence is a significant deterrent.

6. Avoiding nursing home fees

Transfers of property during  a parent’s lifetime which are done for the avoidance of Nursing Home fees run the risk of being challenged by the Local Authority.  The Care Act 2014  provides such transactions can be set aside if they have been done solely for purpose of avoiding such fees.  There is a considerable amount of other anti-avoidance legislation that can be invoked.

7. Things to bear in mind

Where a property is transferred during a parent’s lifetime it is necessary to consider what the implications are for the parent and the child.  The following needs to borne in mind:

  • Does the parent continue to have the right to live in the property? If they don’t then they could find themselves becoming homeless.
  • They may take the view their child would never make them homeless, however, matters may be taken out of the child’s hands in the event of their divorce, bankruptcy, or death. The parent may find that they are dealing with a third party who takes a far less generous approach to the parent’s occupation.
  • Giving a parent the right to continue to occupy the property means it will be regarded as the parent’s property for the purposes of Inheritance Tax. This can be avoided if the parent pays a market rent for the property.
  • If the child doesn’t live in the property as their main residence, then for Capital Gains Tax purposes they will acquire the property at its market value at the time of the transfer from the parent. If the property has increased in value, at the parent’s death, a Capital Gains Tax liability would arise on any subsequent sale.  If the property is inherited on death, there is no Capital Gains Tax as there is an automatic uplift to market value .  Capital Gains Tax is of course payable to a maximum of 28% whereas Inheritance Tax is payable at 40%.
  • The gift has to take place at least 7 years before the parent’s death to avoid Inheritance tax
  • Where a property passes to a child under a Will, then it is always open to any disappointed siblings to bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 on the basis that the Will did not make adequate financial provision for them. This Act only applies post death, and therefore if a parent has given away a property during their lifetime then such a claim cannot be bought.

8. Taking a parent’s instructions

Elderly parents can be in poor health.  They may have hearing and other medical conditions.  It can take considerable time to take their instructions and to establish they understand fully the nature and consequences of their actions.   More than one meeting will normally be required to avoid the charge a parent was stampeded into it

Where a Medical Report is needed, it will be necessary for the parent’s GP or some other Medical Professional to be instructed and for them to be briefed on the advice which is needed.  Any Medical Report will then need to be considered.  This is not a quick exercise.  It is however, necessary  and can help avoid litigation which is considerably more expensive, time consuming and stressful.  It cant be guaranteed however, that litigation will be avoided.

This is general advice and is meant for information purposes only.  It should not be relied upon and specific advice should be obtained on any legal problem. 

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