How can you hang on to your inheritance?

READERS' LIVES: Forms of home ownership ... pension lump sums ... Your financial queries answered
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The Independent Online
My elderly parents own the house they live in and I am likely to inherit it. The time may come when one or both of them might incur substantial nursing home bills, which would give the local authority a claim on their home. I believe there is a legal form of ownership that would allow each of them on death to leave their half-interest in the property to the ultimate beneficiary rather than each other. Could this be a good way of ringfencing assets from the claims of the local authority?

LG, Leicester

You want a form of ownership where your parents are "tenants in common". Tenants in common can leave their share of what they own to anyone they like. By contrast, property cannot be passed on through the will of someone who is a "joint tenant". On death, the property automatically belongs wholly to the remaining joint tenant(s).

The chances are that your parents own their home as joint tenants (or maybe only one of them owns the property). You would need to see a solicitor to amend the form of ownership. This should be fairly easy and cheap.

As a result of doing this, the first of your parents to die will be able to leave his or her share of the home to you. It won't be taken into account should the surviving parent need to be assessed for paying towards long- term care.

By the same token, your parents could leave you any other assets (such as investments) they may have. But the danger of giving too much away is that the surviving parent could end up with insufficient resources to maintain their standard of living.

I'll soon have the opportunity to take a tax-free lump sum from my maturing personal pension plan, but this will obviously mean taking a lower annual pension. Is there a general rule about whether taking the maximum lump sum is a wise move?

JS, Dorset

The justification for the tax breaks given to pension schemes and plans is that they provide people with a retirement income - the more private income people have, the less likely they are to fall back on means-tested state benefits.

But is the ability to take a tax-free lump sum of up to 25 per cent of the maturity value of a personal pension plan such a great perk for someone retiring who needs every penny of income? Probably, yes.

The greater part of a pension plan has to be used to buy a pension annuity, the annual payments from which are taxable. But you could also buy what is called a purchased life annuity with the tax-free lump sum to top-up your pension. The gross income these give tends to be lower than that provided by pension annuities of the same cost. But tax on the life annuity is lower because part of each payment is considered to be a return of your own money and so remains tax-free.

So, when it comes to cashing in a personal plan, get quotes assuming you will use the whole fund to buy a pension annuity. Compare them with quotes that include taking part of the fund as a tax-free lump sum that is then converted into a purchased life annuity. The latter will normally give you a better deal.

If you do not need to maximise income you will almost certainly want to take the tax-free lump sum, to invest, perhaps, for a mixture of income and growth or to finance that much-dreamed-about world tour. But don't take any decisions without first giving careful thought to the longer term impact of inflation on your remaining pension.

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