December 12, 2011

UK: Rocketing bills boost rise of the live-in grandparents

LONDON, England / The Daily Mail / Money / December 12, 2011

Three-generation households

By Jo Thornhill

The growing cost of long-term care, rocketing household bills and the inability of first-time buyers to get on the housing ladder will lead to a growth in the number of extended family households.

But such arrangements can have implications for the funding of long-term care and inheritance tax, so experts are warning families to get advice.

Only two per cent of the population live in households where there are three generations or more. This was among the findings in a report by the new Centre for the Modern Family, a research initiative by insurer Scottish Widows. 

Family ties: Joanna and Andy Caswell-Russell with their son and Joanna's parents

But analysts say tough economic conditions are likely to cause more families to consider this as a way of cutting costs. Joanna Caswell-Russell’s household in Littlehampton, West Sussex, does not fit the standard pattern.

Joanna, 42, and her husband, Andy, 43, made the decision seven years ago to invite Joanna’s parents, Barbara and Laurie Caswell, to live with them. At the time, Barbara, 78, and Laurie, 79, were retiring from the shoe shop business they ran in Gerrards Cross, Buckinghamshire. But it meant they lost their leased flat above the shop.

Faced with the prospect of going into costly rented accommodation, they accepted the suggestion from Andy, a systems analyst, that they should move in with him and Joanna. The couple now have a five-year-old son, Lawrence.

We were moving house and it made sense to find somewhere slightly bigger and get mum and dad to join us,’ says Joanna, 42, an English teacher. ‘They would have struggled on their State pension.’

Joanna says while they all get on well, the two couples also have their own space. ‘Our home is a four-bedroomed town house over three floors and we have divided it up so that we still have some independence from each other,’ says Joanna.

‘We have also converted the garage to give mum and dad their separate living room.’

Although Barbara and Laurie have saved money on rent and their household bills, Joanna says the arrangement is mutually beneficial as her parents are on hand to help look after Lawrence.

‘Mum and dad have saved us thousands of pounds in childcare costs,’ she says. ‘And Lawrence has benefited from having his grandparents around.’

But while offering a parent a place in your home is often done with good intentions, it can have far-reaching consequences and families should get financial advice.

Philippa Gee at Philippa Gee Wealth Management in Church Stretton, Shropshire, says: ‘There’s a lot of guilt around elderly parents and nursing homes. More families are considering looking after older generations at home.

‘The phenomenon will grow as care becomes more expensive, but people need to consider the consequences – not just now but in the future.’

If elderly parents gift money or property to their children when they move in with them, this has inheritance tax implications, says John White at accountant RSM Tenon in central London.

He says: ‘The seven year rule on gifts applies – after this the gift is considered to be outside your estate for IHT, though taper relief applies after four years.’

And if an elderly parent sells their property to move in with their child and gifts a lump sum to that child, this could be viewed as ‘deliberate deprivation’ by local authorities if that parent later needs to go into care.This is because authorities will assess a person’s wealth and assets when awarding State funding for care.

Grown-up children who move in with an elderly parent could also leave themselves vulnerable if that property becomes their only home. If the parent needs to go into care, the local authority could demand the property be sold to pay for the care. And if there are other siblings in the family when the parent dies, the property may need to be sold to split the estate.

‘It is vital to communicate and ensure everyone in the family knows what is happening,’ says White. ‘Get advice and keep records of gifts made or the share of a property.’

He warns that those giving away part of their property to their child need to ensure that they have specialist advice to protect their rights.

‘For instance, you don’t want to get booted out of your home if your child divorces and needs to sell,’ he says.

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