By Adele Bebbington-Plant, Associate Solicitor, Wills, Trusts & Estates
Much has been written of late about the cost of full-time care and the long-term financial impact this can have on your estate.
The Basic Facts
If you live in England and have assets or savings worth more than £23,250 (£50,000 in Wales), you will usually have to pay for your residential care home fees.
If your capital falls below these figures, you will usually be required to contribute an amount based on means-testing.
The means test includes savings, income, and your property, unless it is disregarded.
Your property may be disregarded if:
• Your requirement for care is short term or temporary or it is occupied by
• Your spouse/partner (or divorced/estranged partner if he/she is a sole parent)
• A relative aged over 60
• Your child if aged under 18 years
• A disabled relative
In England, once savings fall below £14,250, (£50,000 in Wales) only income is considered for a means assessment.
The Care Cap
Under the Care act 2014 a care cap of £72,000 for the over-65s was due to be introduced from April 2016. The aim of the cap was to protect a certain portion of an individual’s home/life savings. However, this has been postponed until 2020 and the level of the cap will most likely be reviewed.
If an individual requires nursing care as a result of primarily medical needs, in theory care should be funded by the NHS. However, tight restrictions have been placed on individuals obtaining NHS continuing healthcare. The very limited criteria when an individual can qualify means that NHS funding is becoming increasingly unlikely.
The options which I would I strongly advise against
Many individuals ask if there is anything that they can do to protect their hard-earned assets from being exhausted by the payment of care home fees.
There are two options that individuals often consider, which I strongly advise against.
1. GIVING YOUR HOME TO YOUR CHILDREN DURING YOUR LIFETIME
When a local authority carries out a means test, they will ask about any previously owned assets. The local authority can look back in time as far as they like (the seven year rule for gifts for Inheritance Tax purposes does not apply here!) and will consider the time assets were given away and the motive for giving them. If avoiding care home fees was a significant motive, then the local authority will assess you as still owning those assets and have the power to claim care costs from the person the assets were given to. This is referred to as ‘self-deprivation of assets’.
Transferring your home to your children during your lifetime is therefore not advisable from a care fee point of view. However, there are other reasons
I advise against this. Once you have given away your home, you have lost control of it. If you need to continue living in the property then your ability
to stay there could be at risk if:
• Your relationship with your child breaks down.
• Your child gets divorced – the house may be taken into account in a financial settlement and may have to be sold.
• Your child becomes bankrupt – the home may be sold by the trustee in Bankruptcy to settle debts.
• Your child dies before you – the property (or proportion of it owned by that child) would pass in accordance with your child’s will (or the intestacy rules if they had not made a will).
There are also tax reasons why giving your home away is not advised:
Inheritance Tax. If you give away your house, but continue to live in it, it would still be included in your estate for Inheritance Tax purposes, unless you pay an open market rent and have careful documented evidence of this. This is called a gift with reservation of benefit
Capital Gains Tax. If your child does not live in the property, any gain on sale, compared to the value of the property at the date of the gift, would be subject to Capital Gains tax, as Principal Private Residence relief would not apply.
Stamp duty may be payable as a consequence of transferring your property to your child.
2. PUTTING YOUR HOME INTO TRUST DURING YOUR LIFETIME
Often sold as ‘asset protection trusts’.
As mentioned above, this type of trust could fall under the self-deprivation rules. These trusts are often marketed as providing protection of assets from payment of care home fees, however that marketing may provide evidence of self-deprivation. As with an outright gift to your child, by giving your home to a trust during your lifetime you again lose control of the asset.
Your Legitimate Options
There are however two potential legitimate options to protect your assets:
1. A LIFE TIME GIFT OF A SHARE OF YOUR PROPERTY TO YOUR CHILD OR CHILDREN – WHO MUST LIVE WITH YOU.
In rare circumstances, this may be appropriate and can protect at least the share of the property given to the child from contribution towards care fees. This type of gift can avoid the gift with reservation of benefit rules (for Inheritance Tax purposes) mentioned above as the child takes occupation of the gifted part. Specialist legal advice is imperative if this option is considered. The agreement must be carefully documented and matters such as how property expenses are to be shared must be carefully considered and recorded.
It is important to note however, that the half share of the property could still be at risk due to your child’s personal circumstances, such as divorce, bankruptcy or death and hence this option is only appropriate in rare circumstances.
2. A WILL TRUST – AN OPTION FOR COUPLES
Unlike a lifetime trust, mentioned above, a Will Trust is written into your Will and only comes into operation upon your death. There are no assets given away during your lifetime. This option is suitable for couples who would ordinarily wish to leave their assets to each other upon their death.
Different types of Will Trust can provide protection not only of your home, but other assets too, if so desired. The type of trust that would be suitable
will depend upon your circumstances as a couple such as;
• whether you are married, in a civil partnership or co-habitees;
• the value of your assets and Inheritance Tax position.
• whether you have children from a previous marriage who you wish to ring fence your assets for.
For couples to make a Will Trust including a share of the jointly owned home, it is necessary to own as ‘Tenants in Common’. This means that you each have an individual share of the property to leave under the terms of your Will. (The other type of joint ownership is ‘Joint Tenants’, where the property is left to the surviving joint owner on death, regardless of the terms of the deceased co-owners Will). Changing from Joint Tenants to Tenants in Common is a simple process which can be done alongside making the Will Trust. Please email our team on email@example.com for further information including costs.
When the first co-owner dies, his/her share of the home will be owned by the trust. This means that the share of the home given to the trust will not be part of the means assessment for contribution to care home fees. The governments guide – Charging for Residential Accommodation Guide, indicates that this arrangement will not be contested by a local authority as self-deprivation of assets.
The trust makes provision for the surviving joint owner to be able to continue to live in the share of the home owned by the trust during his/her lifetime. Any share of the property owned by the surviving owner will be taken into account as part of the assessment, if he or she requires care, but the share owned by the trust is safeguarded.
A Will Trust can protect not only your share of your home, but also savings and investments if desired. Similarly, any savings/investments would be owned by the trust and so protected from assessment.
These types of trust are often a useful option if there are children from previous marriages/relationships, as the Will of the first to die controls who ultimately receives the assets after the surviving partner has died. This effectively ensures that those assets pass to the ultimate recipients chosen by the fist to die.
Consider Your Main Priorities
Whilst the two options mentioned above are useful methods of protecting assets, I always advise that it is vital to consider whether protecting your assets is your main priority. It is important for couples to consider how the surviving partner will fund his/her care and whether the goal is not to protect assets from care fees at all, but to ensure that the survivor has access to the best care affordable, even if the consequence is that fewer assets are passed down to children.
If you are concerned about protecting your assets, our specialist team will guide you through the legal options available, including:
• Will Trusts
• Inheritance Tax Planning
• Lasting Powers of Attorney
For more information please contact a member of our Wills, Trusts & Estates Team on 01244 356 789 or email firstname.lastname@example.org
Please note: This is not legal advice; it is intended to provide information of general interest about current legal issues.