An increasing need for long term care among our ageing population is costing many people their homes as a means for funding. This is an emotive and emotional subject we’re hearing about more often.
A lot of planning is carried out by individuals to protect their assets against the taxman taking 40% of their wealth on death, through Inheritance Tax, but less is often done to address the fact that in some instances the local authority could take all of your assets, including potentially the family home should the need for care arise.
From 2016-2017, average care fees rose across the UK, in many cases by more than 10%. This is well above the official rate of inflation.
|Country / Region||2017 avg.||% increase since 2016|
|East of England||£40,820||7.7|
|Yorkshire and the Humber||£28,964||1.3|
Source: DWP/ Prestige Nursing & Care
What financial support could you expect from the government and local authorities for care? Regardless of where care might be needed (in your own home, a nursing or residential care home), the answer is very little if your capital is above an upper threshold, which varies depending on where in the UK you reside:
|England||Upper £23,250||Lower £14,250|
|Scotland||Upper £27,250||Lower £17,000|
|Wales*||Upper £40,000||Lower £40,000|
|Northern Ireland||Upper £23,250||Lower £14,250|
Source: Money Advice Service
In England, if you have capital above £23,250 you’ll be expected to fund your own care. Anyone with assets between £14,250 and £23,250 will be subject to an assessment of needs by the relevant local authority. Whilst the local authority will usually pay the care fees, they will take into account the State Pension to help pay the costs.
Those with capital below the lower threshold will usually have their care fees paid. Capital includes the main home, so inevitably homeowners will have to foot the bill for their own care, leaving their home at risk as a means of care funding. A property in this case would be valued at its present open market value (less any mortgage/loan secured against it) with up to a 10% reduction applied, to take account of any reasonable costs of sale.
*In Wales there is only one limit. From April 2018 those with capital above £40,000 will have to pay all care fees. Those below the £40,000 threshold will be expected to contribute towards care fees from their income (subject to a minimum income retained of £28.50 per week for personal items). The threshold is £24,000 if receiving care in the home.
Entitlement of authority
If there are no other assets available, a local authority has a right under the Community Care Act 1990 to either:
- force the sale of a person’s property to fund care costs.
- take a charge against the property (often referred to as the deferred payment system) and recover the cost of cares fees when the property is sold.
However there are certain scenarios in which the authorities would not take such action:
- A spouse or partner remains living in the home.
- A relative aged 60 or over still lives in the home.
- A child under 16 lives in the home and the person needing care is responsible for their maintenance.
- A disabled or incapacitated relative still lives in the home.
Care is being provided on a temporary basis.
- During the first 12 weeks of a person entering a care home (please note that in some cases, a local authority will only pay fees up to a certain level, leaving the individual to contribute the remaining costs during this period).
“Deliberate deprivation of assets”
A common question we’re asked is, “can’t I just give my home or other assets away to the family, to mitigate the risk of these assets being used for care in the future?”
Unfortunately, the answer is no. Government and local authorities are wise to such transactions and depending on the individual circumstances, giving away property and other assets could be deemed as “deliberate deprivation of assets”, if the main intent was to avoid paying care fees. If a situation is deemed a deliberate deprivation of assets, it’s extremely likely that the local authority would still consider the value of such assets, even if they are no longer owned by the individual requiring care.
A local authority finds it may be dealing with a potential deliberate deprivation of assets, it will look at the following:
- Did you know at the time when you disposed of your property or assets that you needed care or may need care? If so, avoiding paying for care must have been the significant reason or motivation behind giving the assets away.
- Giving away large lump sums of cash.
- Transferring the title deeds of property to someone else.
- Unusual spending patterns.
- Gambling the money away.
- Using savings to pay for large ticket items/personal possessions (such as a car or jewellery) which would in turn be excluded from the local authority assessment.
Don’t give too much too late
Timing is crucial. If you gave away assets long before care was required or even a possibility or likelihood, it’s much less likely that a local authority would be looking at a deliberate deprivation of assets.
Ultimately, the local authority must establish and base their decision on facts and clear intent (within the spirits of an ageing population, there can be many grey areas!).
As with estate planning for a couple, the main issue can arise when a partner dies and the surviving spouse subsequently needs care. It’s crucial to ensure valid Wills are in place, along with a Lasting Power of Attorney.
A married couple will write Wills leaving their entire estates to each other. This is commonly considered a fairly straight-forward way to secure each other’s financial futures should one spouse die before the other. It can also be efficient from an estate planning concept.
Whilst there is nothing at all wrong with leaving entire estates to spouses on death, there are implications should the surviving partner need care down the line, as the survivor then has absolute ownership of the combined estate. If the survivor were assessed by the local authority, all assets will be taken into account and potentially used to self-fund care.
If a survivor is being financially assessed for care fees, it’s highly likely that the opportunity to plan for mitigating fees has already passed, especially when considering the rules regarding deliberate deprivation of assets. Therefore it’s important to try and consider all eventualities when planning for the future.
Who owns the home?
he answer can make a substantial difference to the outcome of care fee planning.
Often couples own their home jointly, known as a Joint Tenancy. Joint Tenancy ownership means that when the first joint owner dies the legal ownership of the property automatically passes to the joint surviving owner, regardless of the terms of the Will of the deceased.
This result is the entire value of the home passes to the survivor, who could in turn be assessed for future care fees.
There are alternative ways to co-own a property where distinct shares on death can be passed on according to the contents a valid Will. Checking how a property is owned is a quick and straightforward process via HM Land Registry.
Rather than leaving an entire estate in a Will, it could be worth leaving the deceased’s share to a trust, creating a life interest for the survivor, while passing the deceased’s share of the property to their selected beneficiaries after second death. This share of the property would not be taken into account by a local authority if an assessment for care fees was subsequently carried out.
From an Inheritance Tax perspective this arrangement would be treated as an outright gift to the survivor, which for a married couple or civil partnership can offer several benefits.
A half-way house?
Passing the deceased’s share of a main residence to a trust also has a potentially positive impact when it comes to a local authority’s assessment of a survivor needing care. The value of the home must be given an open market value on sale at the time of care assessment, to a willing buyer. As the survivor only technically owns half of the property, the value of their half on the open market is likely to be worth less than half of the actual value of the property, and it is unusual that anybody would choose to buy half a house.
Adding it all up
Of course, options must to be considered in the context of an individual’s circumstances, needs and priorities. It may not be worth attempting to protect the main home if the individual has other substantial assets and will be self-funding care anyway, which is likely to be the case when the value of the home does not form the majority of the estate.
For a lot of people though, it’s likely their “Castles” could benefit from some extra protection.