15 April 2018
Baby boomers to ‘Joint Tenants’
There is a growing trend amongst baby boomers who have wealth tied up in their property and living on their own, to sell up and buy a house together with friends in their later years. Sounds like a great idea, but there are several things that you need to consider before moving in. Naadim Shamji, private client solicitor at B P Collins, offers advice.
How will you own the property?
One option is to become ‘Joint Tenants’ whereby upon your death, your friends will automatically assume your share. However, if you have family, you may not wish for this to happen. Another option is to become ‘Tenants in Common’ and to have a Declaration of Trust setting out the proportion of the property that you each own, which is likely to depend on how much money each of you has contributed to the purchase of the house. This is important as your share in the property is likely to form the main part of your estate in your will.
Create a will
This ensures that your assets pass to the individuals that you have chosen, rather than the intestacy rules applying. This is particularly important if there are no children involved as it can become very difficult to ascertain who should benefit from your estate.
In your will, you can give your interest in the property to your trustees to hold for your identified beneficiaries - who will get the benefit of the assets in the future. The assets in the trust are then managed by the trustees, who review the situation at the time of your death in order to make a decision as to which of the beneficiaries should receive your assets. The trustees can be guided by a side letter stored with your will which you change and amend at any time without having to amend the will itself.
Life interest trust
You can specify that after you pass away, your friends can remain in the property for the rest of their lives and once the last surviving friend is gone, the trust would end and each share of the property would be left to the beneficiaries named in each person’s will.
Inheritance tax (IHT)
This is a complex issue, so it is vital to seek the advice of a lawyer. But, generally speaking, if one person leaves their interest in the property (which has a value of over £325,000) entirely to a friend, there would be inheritance tax implications. If, however, the decision is made to leave the share of the property to direct descendants, the residence nil-rate band (RNRB) applies which will result in an additional £100,000 of tax-free allowance, rising to an extra £175,000 in 2020-1, depending on the size of your estate. This might be an issue for remaining friends living in the house, so an agreement beforehand is essential.
Care in later life?
When someone needs to go into a care home, their assets, including property, are usually means tested to ascertain how much they should pay. A lasting power of attorney should be set up to deal with this scenario and agreed and shared with friends.
Lasting powers of attorney
Every member of the group should have a power of attorney (POA) whom they trust, should they lose capacity. A POA can make financial and/or welfare decisions on your behalf when you are no longer able to do so. It’s important that your friends know the details.
If you’re thinking about buying a home with friends, it’s vital that you speak to a private client lawyer beforehand about estate planning. Contact Naadim Shamji on 01753 889995 or email firstname.lastname@example.org.