Care home fees and protecting your estate

Monday, 14 January 2019

One of the most common questions we are asked by clients is “How do I protect my assets if I ever need to go into a care home?” Unfortunately there is no simple answer to this. 

The honest answer is there is absolutely no guaranteed way to avoid care charges completely.  The average cost of care in Scotland is £760 per week which equates to just under £40,000 per year.* In certain circumstances, the local authority have the right to force a sale of your property in order to make you pay for your care.

The rules

Under the current rules, if you have capital over £27,250 you must meet the full cost of any care charges until such time as the cost of these charges depletes your capital to below this figure.  Capital includes property, savings, stocks and shares, Premium Bonds and any other financial assets that you may hold. Fortunately, the value of your house is excluded from an assessment of care charges provided it is occupied by your spouse (or certain other relatives). 

If you have capital below the lower limit of £17,000 this capital will be ignored in calculating how much you have to contribute to the cost of your care and you will be funded by the local authority. 

Between the upper threshold of £27,250 and the lower threshold of £17,000 you will be assessed as though you have an extra £1 per week income for every £250 or part of £250 between the lower and upper limit (known as tariff income).  With the lower limit being so low it is very difficult to manage your estate so that you only have less than £17,000 in capital.

What shouldn’t you do?

You may have seen Family Protection Trusts advertised as the answer to this problem.  These type of trusts are marketed as a guaranteed way of avoiding care charges. However this is simply not the case and these kind of arrangements are, in fact, fundamentally flawed.  The going rate for preparing these types of trusts is usually at least a few thousand pounds.  This is not money well spent.  In transferring your house into a Family Protection Trust you are disposing of an asset for no consideration.  The regulations regarding financial assessment provide that a local authority can look back, as far as they wish, through any past transfers of property you may have made.  If they reach the conclusion that you simply disposed of this property in an attempt to avoid care charges then they have power to simply disregard that disposal.  They will treat you as if you still own your home and fees will need to paid accordingly.

What can you do?

It is possible to transfer title to your property by way of a liferent and fee arrangement.   The capital element of your property is transferred to your children (known as “the fee”) and a right to live in the property is retained by you (known as a “liferent”).  If you can justify the transfer of your property to your children on a liferent and fee basis for some other reason other than wishing to avoid care charges and, provided this reason is credible and  properly documented at the time, then this may help to protect your house from exposure to care charges.  The longer the time period from you transferring the house to your children to you then going into care the better the likelihood that this transfer will succeed in avoiding care charges.  So, for example, if you transfer title a few months before you go into care home then it is very unlikely to be successful and the local authority will include your property in their financial assessment of your capital.  There is often a misconception that as long as the transfer is done more than seven years before you go into care then your property must be disregarded by the local authority.  This seven year only applies to gifts in relation to Inheritance Tax and there is, in fact, no time restriction on local authorities.  A transfer of title may work but we cannot guarantee that it will do so.  Given the current strains on the public purse and the social care crisis, it is likely that local authorities will successfully challenge more of these transfers in the future.

There is a final option which we consider has the best chance of at least mitigating the impact of care home charges on your estate.  Usually, most couples own a house jointly.  Sometimes there is also a survivorship destination in couples’ title deeds which means that the surviving spouse would own the whole house upon the first death.  We can remove any survivorship from your titles and draw up Wills to specify that your respective half shares in the property are instead left to your children subject to a right of liferent only in favour of your spouse.  Your spouse does not actually need to own the entire house but rather have the right to live in the house for the rest of their days.  If the surviving spouse owns the entire house then the risk is that the local authority could force a sale if they ever need to pay care charges.  By making these liferent arrangements in your Wills we can be confident this is guaranteed to at least protect a one half share of the value of your property for your children.  The difference to the previous options is you are not transferring any interest in the property for no consideration but rather this arrangement is in implementation of a Will. Therefore the local authority will be unable to challenge this and it will be difficult for them to force a sale of only a half share of a property. 

At Stevenson Marshall, we have a team of highly experienced Solicitors ready to help guide you through the complexities of estate planning.  If you would like to discuss any aspect of Lifetime Legal planning then please contact one of our Lifetime Legal team on 01383 721141.

*LaingBuisson Care of Older People UK Market Report 29th edition 2018

Contact Us