Last updated on June 20th, 2018 at 11:23 am

With inheritance tax not kicking in until the nil rate band of £325,000 for a single person and £650,000 for a married couple (and proposals for that to increase to £1 million), few people are caught in this trap, despite their initial worries that they might be.  However, more and more people are finding that their hard earned money is being eaten away by care fees that they didn’t expect. Here we discuss what you can do help prevent this from happening.

Who pays care fees?

If you are taken into care for more than 12 weeks, you will be assessed on your ability to contribute to your care fees – or pay them in full.

If you have to go into care, the local authority (LA) will assess your ability to pay for your care.  It will first look at your income.  At present £25.50 per week is allowed for personal expenses, after that the local authority can use your income to pay for your care.  If your income is not enough the LA will then look at your capital assets, which will include property.  If your assets are worth more than £23,500 (including the equity in your home), you will have to pay all of your care costs, so your home may have to be sold.  If your assets are worth between £14,500 and £23,500 you will have to pay a portion of your care fees.

Will you have to sell your home to fund care fees?

The LA will take into account any assets that you own, which will include your home, or your share of your home, (less 10% to account for the cost of selling – or the actual selling costs if it is sold).  If you own your house as tenants in common with someone, only your share of the property will be counted towards your assets.  No matter how you own your home, the value will not be counted if, when you go into care, it is still occupied by:

• your partner (spouse, civil partner, non-married partner, same-sex partner)
• a relative over the age of 60
• an incapacitated relative
• an ex-partner who is a lone parent
• children under 16 years of age

However, if these people were to move out or die, the LA would then be able to use the value of the property in assessing your ability to pay for your care fees.

The LA cannot force the sale of your home, or sell it, but it can put a charge on it so that when it is sold, the costs can be recouped.

What do care fees cost?

According to a Which report a place in a residential care home in 2014 – 2015 cost an average of £587 per week in England.

The government plans to implement a cap of £72,000 that each person will have to pay for care during their lifetime.  This was due to be implemented on 1 Aril 2016 but has been delayed until 2020.  It has been reported that this is only for the cost of ‘care’ and not the accommodation or food costs – which soon add up.

What can be done to protect your assets from care fees?

Whilst we may all accept that we have a responsibility to contribute to the cost of our wellbeing, most of us would not want to see everything that we have worked hard for disappear in costs should we have the misfortune to have to go into a care home.  Of course, we want our children to benefit from our years of work.  But what can be done?  Karl explains that by using trusts, you can protect your assets in several ways.  However, when setting up property protection trust wills or lifetime interest trusts (see below), you must first make sure that you own your home as tenants in common (where you each own a specific share of the property) and not as joint tenants (where you each own the whole property together).  Tenants in common don’t have to be married.

Property protection trust wills

In a property protection trust will (PPT) the owners write separate wills leaving their share of the house in trust for the survivor’s use and benefit.  The ultimate beneficiaries of the trust are generally the children but can be anyone.  When the first one dies, the surviving spouse/partner has the right to live in the property, rent free (known as a life tenant), for as long as they like.  If the surviving partner then has to go into care, the part that is owned by the trust is protected from the LA’s assessment for care fees and only the part owned by the person going into care can be used.  It is often the case that the property then has a lower value due the nature of ownership.

Life interest trusts

These are similar to PPTs but other assets, such as cash and investments, can be protected by leaving them for them the benefit of a spouse/partner in a will in a life interest trust.  This way, the surviving partner is allowed to take an income from any assets but not touch the capital, which will typically pass to the children upon the death of the second partner.  The assets don’t belong to the partner so are not used to calculate care fees.

Family protection trusts/lifetime trusts

These are trusts that you set up during your lifetime whereby you can transfer an amount up to the nil rate band into a trust that you have some control over (as one of the trustees) during your lifetime and that will pass to the beneficiaries of the trust when you die.  The funds can be passed back to you at any time should you wish it.  You can set up one of these trusts if you are in good health and do not expect to be going into a care.  If you do expect to go into a care, the LA could see this action as a deliberate deprivation of assets (see below) and could still pursue the value of the trust to contribute to care home fees. As well as the deliberate deprivation of assets rules, there are other factors to consider before decided whether to create such trusts, which we would discuss with you at an initial meeting.

Deprivation of assets

Giving away your assets can be risky and needs the advice of a specialist such those at Graysons.  If it is clear that you are giving away your home or assets to avoid paying care fees, local authorities could see this as a deliberate deprivation of assets and could claim care costs from the person who has taken over the assets.  This can also happen if you sell your home to a relative, for example, for a nominal fee.  When assessing for care fees, LAs will ask about previous assets and look at the motivation of any that have been sold or gifted.

Many people talk about ‘the 7-year rule’ and some advisers tell their clients that as long as they survive for 7 years after they have given their house away, the local authority will not be able to use its value when assessing for care fees.  Some advisers also make reference to surviving 6 months after giving the property away.  Neither are correct!  New rules that came into effect in April 2015 make it clear that the length of time a person survives after giving away assets is not important.  The criteria that local authorities will look at is ‘what was your intention in giving away those assets?’.  If it was simply to avoid care fees, it will be seen as an attempt to conceal assets and the strategy will have failed.  Local authorities can reverse a transfer of ownership!

How can Graysons help?

Our estates’ team are experts in dealing with all types of trust and advising clients how best to use them.  Contact us now for an appointment in which we can discuss your specific needs and give you advice tailored to your own circumstances.

You can find out more about wills, estates and trusts on our web pages.