Against the background of an ageing population – and an increasing awareness of the fact that more people are requiring care – the issue of residential care fees is often at the forefront of clients’ minds.
Subsequently, many are understandably concerned that the value of their assets will go towards paying for their care, rather than being passed to their children or loved ones, as they would wish.
The cost of care can vary greatly depending on where in the UK the person requiring care is based; generally, care in Greater London and the south of England costs significantly more than in the north of England. The average cost of a residential care home in the UK, in 2017/18, was £32,344 a year (LaingBuisson Care of Older People UK Market Report 29th edition 2018).
This rose to over £44,512 a year when nursing care was included. Not only can care costs vary hugely across the country, but the costs of staying in a care home can also vary considerably depending upon the type of care offered.
Given that clients are generally concerned about having to use their home or their savings, rather than income, to pay for future care, it is pertinent to consider the circumstances when capital will be taken into account during financial assessments, and when it might be disregarded.
Deprivation of Assets
We are finding it increasingly common to come across clients who have ‘heard’ that they can take action to protect their house against care home fees. The action they are likely to have heard about is either flexible life interest trusts within wills, or sometimes outright gifts and transfers of property to family members, usually children. Each of these options needs to be considered carefully as there are advantages and disadvantages to each.
When a client is seeking advice in relation to estate planning, any reference to care fees or care planning in a case file, whether in the instructions, file notes, email correspondence or similar, could provide grounds for a local authority to argue that the planning that was undertaken was an act of deliberate deprivation if the client has made it clear that their motivation for seeking said advice, and subsequently taking any action, was to avoid future care fees.
Another commonly used vehicle for estate planning for ageing couples is to include flexible life interest trusts within their wills. These trusts give a lifetime interest in the property, and any other assets of their choosing, to a beneficiary of their choice, called the ‘Life Tenant’.
Having a lifetime interest means that the Life Tenant will never own the assets that are held in trust absolutely, however they will be entitled to lifetime enjoyment of the property, and any other assets that are included in the trust, and any income which may arise (i.e. if they have rentals or income producing investments).
Clients need to be advised that, similarly to the lifetime trust outlined above, they should not create this type of trust solely to avoid paying care fees in the future, as this would fall foul of the deprivation of assets rule.
As long as there are genuine reasons for creating this type of trust within their wills, and neither of them has a foreseeable need for care at the time that the wills are created, it is unlikely to cause issues.
The final option that clients often ask about as an alternative to trust options, is whether they can simply gift their property to their children or loved ones during their lifetime so that they no longer own the asset, either in full or in part. This query often comes up both in terms of avoiding care fees but also for the purposes of reducing IHT.
It is important to advise clients that, whilst this may seem an attractive option on the face of it, particularly if they have a good relationship with their loved ones, it leaves them in a very vulnerable position and is therefore not advisable.
Once the property has been transferred (either partly or wholly) into the loved one’s names, for example, they could, as the new owners, be minded to attempt to force a sale and realise their interest at any time, perhaps more prematurely than the client intended.
Overall, there are some potential avenues to explore with clients that may lead to assets being protected from financial assessments for care fees, however, the clients must always be advised that the local authority will need to be comfortable that they have not deliberately deprived themselves of assets or they may take action, thereby rendering all this planning futile.
Libby Holding is legal services director at APS Legal & Associates, part of the SimplyBiz Group