Explains Sofia Tayton, Care & Capacity specialist.
When it comes to planning for the future, many people worry that the value of their estate will be “eaten up” in care home fees they may have to pay in old age. However, giving your assets away in order to avoid future liability for care costs is not the solution.
If you move into a care home and you have savings and property worth more than £23,250, you will not qualify for any financial support from the local authority. Most people in this situation will have to fund their own care.
It may seem that giving assets away to reduce your capital and help you become eligible for local authority support is sensible. While you are free to give away as many of your assets as you want to, there are consequences if you intentionally reduce your capital to increase your chances of getting financial support.
Deprivation of assets is the act of deliberately reducing your assets in order to ensure they will not be included in the financial assessment for care home fees.
If you ask the local authority to help fund the cost of your care, they will carry out a financial assessment. You will need to provide information on previously owned assets, and whether they were sold or gifted (which includes selling at an undervalue).
It is for the local authority to prove that the sale or gift was a deliberate attempt to avoid liability for care fees. This means motive, value, and timing are all relevant. It is important to note that there is no ‘cut off’ point beyond which a gift or transfer will be ignored, unlike the 7-year rule for tax planning.
Gifting is not always going to fall foul of the deprivation of assets rules, and it is your intention that will be relevant. Inheritance tax planning and helping family members are valid reasons for making gifts.
A quick google search on this topic will throw up adverts for organisations selling lifetime trusts as a mechanism to avoid care fees. Trusts are useful and have their place in estate planning, especially if you have minor, vulnerable, or disabled beneficiaries. They can also be used for inheritance tax planning.
However, if your motive in setting the trust up is to avoid future liability for care fees, there is a real risk that the transfer of assets to trustees will be viewed as deliberate deprivation.
You can do some planning in your wills to potentially reduce the exposure of a joint estate to care fees on the first death. There may also be other valid reasons why gifts and/or trusts are necessary in your estate planning. This is why it is important to seek legal advice and review all of your arrangements.
Not only is choosing a residential or nursing home a very important decision, but the worries about funding can also be daunting. Lodders’ team will help you to understand the choice of homes available and how you can fund them.
For more information on help with planning for long term care and the associated costs, please get in touch with a member of our Care & Capacity team, on 01789 293259, or via email.Contact us
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