Member Story – Adapted Living

My wife Louise and I are the parents of Mike (age 33 WS) who has been living in Local Authority provided Sheltered Accommodation for the last 12 years. After experiencing various problems with that accommodation and becoming increasing dissatisfied with it, we decided to create our own arrangement to ensure Mike has a safe and enjoyable home for life and, in due course a degree of financial independence and security. I was able to bring 40 years of professional experience as a Chartered Accountant, Trust & Estate Practitioner and Chartered Financial Adviser into play which obviously others cannot, but this article summarises what we have done in the hope it will be useful to other parents who have the same concerns.

The plan involved setting up a Discretionary “Disabled Persons Trust”, gifting money to it, lending it some more money and then using the money to buy and adapt a house. The house is let to a Registered Supported Living Provider (in our case Golden Lane Housing), which sublets to Mike and two of his friends who have similar needs together with 24/7 live in support. The Local Authority pays Golden Lane for housing the three young men; Golden Lane pays rent to the trust.

We have engaged with Golden Lane for various reasons. Firstly, legislation would preclude Michael from claiming Housing Benefit if either we, his parents, or the trust, which benefits him, rented the property directly to him. Secondly, if we or the trust rented directly to the 3 tenants, we would have a serious conflict of interest if a dispute arose between them. We want to remain impartial and ensure no tenant has any sort of preferential treatment. Thirdly, we now have to deal with just one master tenant, and it will deal with a lot of the administration for us.

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The trust is controlled by Louise, Mike’s siblings and me. Its first duty, after ensuring the property is well maintained and fit for purpose, will be to repay the loan owed to Louise and I. Once that loan is repaid the rental income can be applied for Mike’s benefit as the trustees see fit. On his death the trust capital and income can be used to benefit his brother and sister, and/or any children they may have, as the trustees see fit.

We loaned most of the money to the trust for two reasons:

1. We didn’t want to give the trust any more than the amount we plan to give our other two children.
2. Quite a lot of money is involved so we can’t afford to give it all at this stage. The loan arrangement effectively means we’ll get it back in monthly instalments if we need it. The return of that capital is tax free and only any interest we charge would be liable to tax.

The loan agreement includes flexibility as regards interest rates and repayments, so we have some scope to manage family cashflows and our, and the trust’s, tax liabilities. We don’t plan to charge interest, but it may be in the family’s best interest at some point if we do. We can write the loan off at any time if we want to, and there may come a point when it’s in the family interest that we do.

We couldn’t have bought the property in Michael’s name as he lacks the legal capacity required. Buying it in a “Disabled Persons Trust” achieves several important benefits, including:

1. As co trustees our other children can easily step in and assume responsibility if and when we become too decrepit to retain it. We are lucky in that they have the interest and the ability to do that. A Solicitor is held in reserve if they ultimately change their minds.
2. The property isn’t owned by Michael so it can’t be taken into account in any means assessment relating to State Benefits or Social Care funding.
3. The property isn’t comprised in our estate and won’t be liable to Inheritance Tax on our deaths. Any outstanding loan balance will be but hopefully there won’t be one at that point.
4. We’ve used a “Disabled Persons Trust” so that we can elect for any “profit” resulting from the arrangement to be taxed as though it belongs to Michael, who has unused tax allowances, rather than at highest Additional Rate as it would be in a pure Discretionary Trust.
5. Although its tax efficient during Mike’s lifetime its value will potentially be liable to Inheritance Tax on Mike’s death. Mike will however have his own tax allowances available and those will reduce the bill as far as possible, and if the trust does pay tax at that point, it will at least have done its job during Mike’s lifetime.
6. The Disabled Trust ensures that nobody else can benefit to any significant extent during Michael’s lifetime. We trust our other children implicitly, but a pure Discretionary Trust would have given them power to benefit themselves whilst Michael is still alive.

There is, however, one key disadvantage of a Discretionary “Disabled Persons Trust” in that a property purchase is subject to a 5% Stamp Duty Surcharge. We could have avoided that by using a simpler form of trust but doing that would leave the capital open to assessment if Mike ever moved out of the property, and back into a residential care setting. We felt higher Stamp Duty was the lesser of two evils.

One downside of using any form of trust is it’s practically impossible for a trust to obtain a mortgage. Fortunately, we’ve been able to finance this ourselves but, noting that borrowing would have increased risk, if we’d needed to borrow we could have mortgaged our own property, passed the funds to the trust and used the rental income to repay that mortgage. As we are over 55 years old if cash had been tight, we could have used equity release on our own home to raise funds for the trust. We could also potentially have joined with other families to collectively fund a trust, although that would have made managing the arrangement potentially a lot more complicated.

Understanding finances and ensuring financial viability is a crucial first step!

It is important to note it’s not been entirely straightforward, and we haven’t been entirely in control.  

North Somerset Adult Social Services are responsible for commissioning Care & Support Provision and Housing, and we’ve had to work to get the Commissioning Team on board. That’s involved convincing them the provision is not only safe and appropriate for all 3 young men, but it is also financially viable. We’ve been lucky to have been allocated two particularly good and enthusiastic Social Workers who’ve been instrumental.  Experience suggests that, given the cost of providing Core (live in) Support, support is more likely for a project which has critical mass, and a proposal to house less than 3 would, I think, have been more problematic.

Mike’s Care & Support has had its ups and downs over the last 15 years but two years ago we broke away from Social Services, moved to Direct Payments and found a really good, relatively new, relatively small local Agency which is completely on board. It already supports 3 similar houses which was one reason we chose it. They have really helped get Golden Lane on board too.

Given the nature of the tenants and Golden Lane’s involvement we’ve had to make sure the property is completely up to the mark. Apart from all the usual safety standards private landlords have to achieve we’ve had to install more safety equipment, remove some physical risks, reconfigure a new kitchen and build a new walk-in shower room.

The plan is not without risk. We have a 5-year lease and, if Golden Lane is not willing or able to renew, we will have to find an alternative head tenant or rethink. Housing Benefit legislation or rates could change and so could the tax treatment of the trust. It’s also likely all 3 Care and Support plans will be reviewed. Provision could be reduced and if anyone’s care and support is reduced the Care and Support Provider might want to rethink. It’s also possible the 3 guys might fall out and it’s worth noting that although they all get on well at the moment, they have never lived with each other before. It’s also the first time the others will have left their family homes.

We’ve also had to consider the possibility that Mike will predecease his two friends, at that point the house will have done its job for him, but they may still need a home. In case we are not around we’ve expressed clear instructions to our co-trustees as to how we’d like the situation to be dealt with.

In any event, the result for the foreseeable future is Mike and his friends have a very nice, very safe and hopefully very enjoyable place to live, potentially for life. It should be far less institutionalised, far more personalised and far more flexible than the Supported Living environment Mike has experienced to date. We’ve invested family capital in what should be a reasonably secure asset which has potential to grow in value and in the meantime, we’ve generated for a pretty secure, potentially very tax efficient “income” stream for either ourselves or for Mike. When he doesn’t need it any more it’ll go to other family members. We haven’t been able to plan for every eventuality, but we’ve covered most scenarios. I’m also pretty sure we’ve got enough flexibility to deal with those we haven’t considered as and when they arise.

Hopefully this has been an interesting read and its provided food for thought. I’m now retired and no longer practising professionally so I can’t give any formal advice but I’m very happy to discuss what we have done in more detail if anyone would like me to.

Dave Robinson