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Why care home fees could affect your estate, and how to prevent it

For most citizens in the UK over the age of sixty, even if in the best of health, there is a background worry that one day they will end their days in a nursing home or a care home. The reasons for this new phenomena are simple: -

People are healthier and therefore living longer. Add to this the advances in medicine and the better standards of care and of course people are living longer still. All this at a time when the declining birthrate is leaving fewer and fewer children to look after their aging parents. Also, more so than in any previous generation, those children are living away from their place of birth and irrespective of gender, are having to work for a living. No more the conventional family with a lady of the house looking after the home and its dependants.

This whole question of care has created a divide within the older community between those who are entitled to free care and those who have to pay for it. Other than for those who have taken preventative action it is generally the less successful, less responsible, more profligate members of society who have the free entitlement, whereas those members of society who have been more prudent with their spending, perhaps made sacrifices, saved from a modest income and bought their own property who find themselves having to pay for care. The tragedy of course is that the authorities take the money from these members of society at a time when they are most vulnerable and least able to object to their savings being taken or their house being sold.

Leaving aside the injustice of rewarding the indolent and punishing the responsible citizenry, can anything be done to provide protection against seizure of assets to pay for care?

Well yes, one can take out insurance to pay for the eventuality of going into care, but depending on when the policy is started, this can be an expensive solution.

Are there any other options? Again yes, but only with careful forethought and planning. Clearly where a citizen has made provision for their children or dependants and given away their assets into trust many years previously, it is unlikely that the authorities would challenge the action. But the closer the provision is to the date when that person goes into care, the greater the chance of local authority action being taken.

So what are the criteria that will determine the local authority's actions?

Well, the local authorities are governed by a number of rulings that determine what action can be taken. Firstly there are a number of circumstances when the home is disregarded

  • During the first 12 weeks of care.
  • During temporary or respite care.
  • If it is occupied by a husband, wife or unmarried partner.
  • If it is occupied by a close relative over the age of 60 (or under the age of 16).
  • If it is occupied by a relative under the age of 60, who is disabled.

thereafter the local authority's actions can, in simple terms, be summarised by two principles that determine the way in which a person's assets are means tested.

Firstly there is the principle of 'Deprivation of Assets' whereby a person cannot deliberately and specifically deprive themselves of capital by giving it away in order to avoid local authority residential care charges. Clearly someone who so deprived themselves immediately before checking into care would fail in his /her attempt, but would that be the case if the deprivation had occurred, say a number of years before? Was the primary purpose of the gift (disposition, deprivation) to avoid care charges or, particularly if the person was leading a full and healthy life, was there an other purpose? The onus is on the local authority to prove that the primary purpose of a gift was to avoid care charges and to produce evidence that the donor foresaw that he/she would require residential care. So where a donor makes a gift for whatever reason but with the knowledge that the gift could reduce care home charges at some future time (if he/she was unfortunate enough to need care), would that be treated as deprivation? This would depend on the primary reason for making the gift. In other words the decision would be very much subjective and depend on individual circumstances. For further details refer to The National Assistance (Assessment of Resources) Regulations 1995 – Regulaton 25.

The second principle that has significance deals with the manner in which a local authority assesses the value of assets. In particular, the valuation of a life interest in a property or trust. For inheritance tax purposes the capitalised value of a life interest counts towards the overall value of an estate on death, but the local authority cannot take account of any capital value associated with a life interest when calculating the assessment for care home fees. Thus, a where a married couple own a house as 'tenants in common' they each own half the house. When one spouse dies leaving a life interest in their half of the house to the survivor, the local authority cannot bring that half of the house value into account for assessment, as the surviving spouse never had ownership of that half in the first place. Furthermore, faced with this situation the local authority has the additional problem of valuing half a house. On occasion, this can lead to a valuation below its purely arithmetic value. For example, where a house has a market value around the national average of say £200,000, it is permissable to deduct selling expenses of 10% of that value, and of course to make a deduction of the 50% that was never owned by the life tenant (care home resident). But is the remainder a realistic value for a half share of a house and who would be interested in buying? Consequently, the local authority in such circumstances will frequently take a more realistic viewpoint and settle for a more nominal value.

Where a couple have wealth beyond the value of their home and above their respective nil rate bands and one spouse needs the services of a care home, their home could not be taken into account (as the remaining spouse is still in occupation) in a local authority assessment. However the other assets of the spouse going into care can be assessed and if there is an uneven split in their respective wealth in favour of the other spouse, the local authority can asess the assets of the healthier and wealthier spouse.

Can anything be done where a surviving spouse has joint ownership of the marital home. and therefore now owns it outright? If the property is below the nil rate band threshold it would be possible during the surviving spouse's lifetime to create a pilot trust with a small sum (typically a £10 note). The trust however would allow the introduction of other assets including the property. The spouse is both the settlor and one of the beneficiaries and as such can be given the right to the income from the trust. The reservation of benefit for inheritance tax purposes would not apply as the property is below the nil rate band. If the likelihood of care is not in the mind of the testator as the primary purpose for creating the trust and preparing the Will, then there would be a defence against any cliams made by the local authority. Futhermore where the trust is discretionary, it is immune from local authority asessment whilst it is held by the trustees, who have complete discretion as to who can benefit from the income or capital of the trust.

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