Posted: Friday, 4 January 2019 @ 13:43
The issue of care fees was topical in the general election Irrespective of the future direction of the Conservative minority administration families across the country will continue to be concerned about their liability for care fees.
Here are some questions and answers on liability for care fees and how to protect your family's inheritance.
Do you really want to hand control over your care to the state?
If you are a self funder, (around 40% of care home places are self funding) the individual has more freedom about choosing a care home compared to someone funded by the local authority. Given this you may want to think carefully about putting youself through the charms of local government bureaucracy, However if financial support is the name of the game consider below.
What Is the broad financial position If you want state help?
If you or your partner need care in later life and you are
not entitled to NHS Continuing Healthcare funding, the Local Authority
will usually conduct a means test to see if you can fund the cost of care
If you have assets above £23,250, you will be
expected to pay for the full cost of your care. If your assets are worth
between £14,250 and £23,250, you will be expected to make a contribution to
your care. Once your assets reach the lower £14,250 limit, the Local Authority
will take over funding your care fees. We will have to see what pans out with the election but it looks like the Conservatives/Labour will be looking at a cap on care fees though the amount is unknown.
How can you mitigate the risk of losing equity in the family home?
Given the impotency of our political parties and the uncertainty of what is going to happen there are three broad options - Gifting, Asset Protection Trusts and Will Trusts.
How does gifting mitigate care fees liability?
Individuals can make an all-out lump sum payment of cash to a child
or grandchild, a
payment of a child or grandchild’s debt as a
gift (e.g. paying off their mortgage, a transfer of a property to a child or
grandchild e.g. their main residence or a holiday home
a transfer of assets into trust which cannot
be revoked. This takes money out of the estate and may not be considered by the local authority and/or HMRC for the purposes of IHT liability/care fees. The downside of this is that you handing over control of money to someone else and it may still not be IHT efficient.
What is the second way to avoid care fees and protect the family home?
You can transfer
your property into an irrevocable ‘Asset Protection Trust’ (also known as
‘Lifetime Asset Trusts’) to avoid care fees. Companies(who are not necessarily legally or financially trained) claim that this is completely legitimate and will ensure your assets are protected from care fees.
However, the risk here is that these actions may be regarded as
deliberate or intentional ‘deprivation of assets’ and they can create
other complications as well such as creating a Capital Gains liability and can be expensive to be set up.
How likely is it that gifting and/or or Asset Trusts will be considered a deprivation of assets by the local authority?
The best source of guidance is
Charging for Residential Accommodation Guide (CRAG) 2011 (https://www.gov.uk/government/publications/charging-for-residential-accommodation-guide-crag-2011)
Consider the following below within this:
Purpose of disposing of an asset
There may be more than one purpose for disposing of a
capital asset only one of which is to avoid a charge for accommodation.
Avoiding the charge need not be the resident's main motive but it must be a
Timing of the disposal
The timing of the disposal should be taken
into account when considering the purpose of the disposal. It would be
unreasonable to decide that a resident had disposed of an asset in order to
reduce his charge for accommodation when the disposal took place at a time when
he was fit
and healthy and could not have foreseen the need for a move
to residential accommodation.
If you fall foul of this guidance( and the local authority does have the right to go back a long while and can access legally privileged documents) then you are vulnerable to attack from the local authority and you may have a deliberate deprivation of assets situation.
How likely is it that a Local Authority will go for you/your estate if you have deliberately deprived assets from them?
As a taxpayer you would like to think it is very likely but this is not that clear -
The BBC contacted local authorities across the UK using the
Freedom of Information Act to find out which had used the powers available to
them to recover care fees
Only 16 of the 121 councils that responded said they had
recouped money back using legal powers.
Surrey Council recovered the biggest sum, recouping more
than £250,000 since 2009.
This means despite the legal powers local authorities are not pulling their weight. However this may change in these cash strapped times.
What solution do you suggest?
If you want to gift/place your home in an Asset Protection Trust you may be playing Russian Roulette.
If you are single/divorced or your spouse/partner is now ill and is due to go to a care home it is too late.
If it is not late, you can do a will which has a clause that the first spouse to die leaves his or her interest in the matrimonlal home to a discretionary trust or a settlement in which the survivor has an immediate post death interest. The settled interest is then protected should the survivor require nursing home care. You need to ensure that the jointly owned property is owned as tenants in common not as joint tenants.
Charging for Residential Accommodation Guide (CRAG) 2011 gives additional guidance together with other legislation namely the National Assistance(Assessment of Resources) Regulations 1992.
Effectively you ringfence half the value of the property.
Overall it is critical to sever any joint tenancy before the first death or it is too late.
You do need a lawyer to look at this carefully and consider all factors.
Can your firm help?
We offer a fixed fee will service and severance of joint of tenancy service. Please call or email us.