This week our Personal Finance expert Gaynor Pengelly answers your questions and joins forces with Dorothy Maxwell, Financial Adviser Partner of Positive Solutions
Are you confused by an aspect of your money or are you seeking help with a more specific financial matter? Then please send your query to our Ask Gaynor section.
Each week we choose up to five questions for our panel of experts to answer – and publish the results on the FMWF site. Unfortunately we are unable to answer all the questions we receive or send personal replies.
To increase your chances of being chosen, please write your question carefully in simple, concise English and include any facts and figures that you feel will help us fully understand your situation.
Email: women@financialmail.co.uk
Should we accept a cash gift from my elderly father?
My 70 year old father has kindly offered to pay for a £40,000 extension to our house to accommodate our rapidly growing family. Can you tell me what the tax implications of this gift will be? We are worried that he may need this money one day to cover the cost of a nursing home. Jane, Chichester
Dorothy Maxwell, Financial Adviser Partner of Positive Solutions replied: ‘It depends on the size of your Father’s estate as to tax implications.
The estate would need to be worth more than the “Nil Rate Band” ( £ 325,000 for 2010/11), including the value of the gift.
If an estate is liable for inheritance tax and you gift an asset to someone within 7 years before you die the person who receives the gift may have to pay inheritance tax on it at a rate of 40% ( 2010/11).
In the first 3 years the tax would be 100 % of the value of the gift; year four 80% year five 60% of the gifts value, in year six liability would be 40% of the value of the gift, and in the 7th year 20% of the gifts original value.
After 7 complete years, there would be no charge. If you are concerned about the potential impact of an IHT bill, there are life insurance policies designed to cover this called “ inter-vivos” policies, where the sum assured reduces in line with the liability.
With regard to care home fees it is against the law to transfer ownership of an asset to another person to avoid paying your care home fees. If you have transferred an asset to another person within 6 months before you get a place in a care home your local authority cam make you pay your care home fees.
The council can recover the cost of your stay from whoever received the gift. If the transfer happened more than 6 months before you moved into care, you can be assessed as if you still owned the asset. There is no time limit as to how far back the council can go to find out if you have given away any assets to avoid care costs. However, the local authority must prove that any deprivation is deliberate. If you gave away money or went on an extravagant holiday a while ago before a care home was on the cards you should not need to worry. A lot depends on state of health when gift is made.
I might have the breast cancer gene – are there any policies I can take out to protect my family financially?
My sister has been diagnosed with breast cancer and I’m now worried that I could be carrying this gene. Can you recommend a policy that I can take out to financially protect me, my husband and three children should the worst happen? Susie, Manchester
Dorothy Maxwell, Financial Adviser Partner of Positive Solutions replied: You may want to consider a critical illness policy so that other life changing illnesses are covered as well such as heart attack and stroke and some cancers.
What illnesses are and are not covered and the definition of the illness necessary for a successful claim will vary between companies so it is important to understand a policy’s terms and conditions before buying a policy.
Life insurance companies will want to gather as much information as possible before making an underwriting decision so you will need to disclose your family history.
A first degree relative ( mother, full sister) is one of the factors associated with an increased risk of breast cancer although this is more of a concern if it is two or more first degree relatives affected.
Unfortunately a number of types of Breast Cancer have a very strong genetic element meaning carriers of certain genes have significantly increased chances of suffering from the disease, if your sister’s condition is one of these then it is very likely that insurers will specifically exclude Breast cancer from the policy, or decline cover altogether.
Cheapest is not always best and critical illness is not as simple as life assurance and it is best to take advice before buying a plan . The ABI lays down a list of conditions that must be included in critical illness policies but some providers have always offered ABI plus definitions so although you may pay more in premiums you get a better and more comprehensive level of cover.
Should we take out redundancy cover?
My boyfriend and I have saved hard for a deposit on a property and can now afford to buy. However, we are worried that we will lose our jobs. Money is tight at the moment but should we take out redundancy cover along with our mortgage just in case? Sally, Maidenhead
Dorothy Maxwell, Financial Adviser Partner of Positive Solutions replied: ‘Unemployment insurance can provide peace of mind with regard to paying bills. It can be used to pay the mortgage, energy bills and associated household bills. It is tax free income.
These plans typically pay out after a minimum of 30 days for a 12 month period. The costs of this cover vary considerably between lenders and providers so it is best to take independent advice. They only cover involuntary unemployment and will not pay out if you are dismissed or leave voluntarily.
Things to be aware of are that they do not cover certain categories of workers such as the self- employed and those on short term contracts. They do not pay out straight after joining so those who lose their jobs within 60 days of buying insurance may be unable to claim and you will not be eligible if you are aware of impending redundancies at your place of work.
Remember that redundancy is not the only event to impact on your ability to meet mortgage payments. You may also want to look at bundled plans that can include income protection for ill health and critical illness cover as well.
Dorothy Maxwell runs Hull based www.femaleifa.co.uk and is Financial Adviser Partner of Positive Solutions. Dorothy, who holds the CII Diploma in Financial Planning, prides herself on providing friendly personalized financial advice in areas of personal protection, pensions, mortgages, investments and inheritance tax planning.
www.thinkpositive.com
www.femaleifa.co.uk
Tags: Elderly Parents, illness, redundancy, Redundancy Advice
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