Many of us have the aspiration to leave a legacy to our loved ones. This is typically done in two ways:
Gifts in Life – gifting in life can be a rewarding experience as it gives you the opportunity to witness the impact of your decision. Gifting can also be an effective way to manage inheritance tax implications, although it is important to familiarise yourself with gifting rules so that you are clear on the implications. This can be a complex matter so, if in doubt, seek financial advice.
Gift via Will – making sure your Will is up to date and reflects your wishes is an important step when planning your estate. This effectively allows you to nominate your beneficiaries and gives you control over the distribution of your assets. It is important to be mindful of inheritance tax, and seeking financial advice may be appropriate if this is a concern.
Deliberate deprivation of assets (DDA)
It is extremely important to be mindful of DDA. This is where an individual gifts away their assets with the express intention of reducing the value of their estate to avoid paying for care. Under current legislation, care costs in Scotland are met by the individual until their estate is reduced below a specific limit which is reviewed annually. Once the estate falls below the limit, the local authority will pay a standard rate to the care provider to contribute towards care costs.
If, however, the local authority have reason to believe that DDA has occurred, they can simply reject a request to pay support. This can put the individual in a very difficult position which ultimately could result in them not receiving the right level of support, or, in cases where the agreement cannot be settled, may end up in the courts.
This is where gifting in old age can be tricky. Seek advice if you are uncertain about how gifts could be perceived when there is a need to fund care costs.