Paying for Care home fees can be worrisome for you and your family given the high costs involved, however we can help you with the right advice to mitigate care home fees and alleviate the stress of estate planning.
If you are required to go into a care home, the local authority will assess your assets and income and conduct a financial assessment. This financial assessment accounts for the entirety of your income and capital in order to calculate the contribution you can afford to make towards your own care. The financial assessment covers both heritable property (e.g houses, land, buildings) and moveable property (e.g bank accounts, shares).
Financial assessment of Capital:-
- If you have capital above £29,750 you will be assessed as being able to pay for the care yourself and will not receive means-tested assistance from the local authority, although you may receive a free personal or nursing care contribution to costs from the local authority;
- If your capital is between £18,500 and £29,750 you will be expected to make a contribution of some of your capital towards your care costs;
- If your capital is under £18,500 this will be ignored and not included in the means test;
For most of us, our home is our most valuable asset and this can be gifted or transferred before your death, however, gifting your property for the sole reason of avoiding care home fees is a deprivation of assets. Contrary to popular belief, there is no “7 year rule” in regards to how far back the local authority can review your financial affairs to investigate any deliberate deprivation of capital.
Intention and timing
The local authority has the right to investigate any potential deliberate deprivation of capital. Intention and timing are the main factors here. Individuals have many reasons for wanting to dispose of property, and avoiding care home fees may not be the main motivation. When the local authority carries out the financial assessment, there is no time limit to their checks and they can go back many years. This means it is particularly difficult to forecast whether a local authority is likely to raise an issue in any future financial assessments.
If a local authority thinks you have ‘deliberately’ deprived yourself of capital assets, the consequences of breaking the deprivation rules include:
- For periods of over six months before the transferee went into a care home, a local authority can treat them as still owning the property and include the ‘notional value’ of it in any financial assessment. This means that you will be treated as if you still own the property, and may not be entitled to help towards care home costs.
- For periods within six months of the person entering a care home, a local authority may seek to recover the charges from the person to whom the property was transferred.
The rules on care funding can change without warning, so any arrangement you make to avoid paying care fees may not be fruitful. If you are in good health, live independently, and there is no pressing reason for you to be taken into long-term care, then there is a greater prospect of success. Although it should be noted, there is no guarantee.
If you can evidence other important considerations for the transfer, then it may be more difficult for a local authority to claim, ‘deliberate deprivation’. This could be as simple as having a dependent with additional needs and ensuring they continue to live in their home after your death.
It may also count as deprivation if you sell a property for less than its actual value.
Gifting your house
If you would like to gift your house to your children, ideally this should be done whilst you are in good health, however this is not essential. This can be done by way of a transfer of title. There are risks that come with transferring a property into a family member’s name. If you would like more information on transferring your property please see our article on Transfers of Title (insert LINK to Article here).
Gifting your house in trust
Another means of gifting your property is by placing it in a trust. If you were to go into care and your home was in a trust, it may not be assessed for care home fees because the property is no longer owned by you, nor is it part of your capital. However this must be carried out with a legitimate reason other than to avoid care home fees.
We would recommend checking the title to your property to assess whether you have a survivorship destination. If you have a survivorship destination, this means that on the death of either homeowner, the deceased's share of the property will pass automatically to the survivor.
There is the option to remove the survivorship destination and update your Will to ensure that your one half share of the property is bequeathed to someone other than your spouse. Therefore, if you have to go into care, your one half share will not be assessed for care home fees as your share will no longer be part of your estate.
Equity release schemes allow homeowners aged 55 or over to release tax-fee cash from the value of their home.
There are two main types of equity release options: lifetime mortgages, and home reversion plans.
Lifetime mortgages – This allows you to take out a mortgage secured on your main residence whilst retaining ownership. You can choose to take out the cash in a tax free lump sum, or in smaller withdrawals. This loan amount and any interest is paid back when you die and the provider sells your house. This is an option available to help fund care home costs however financial advice is highly recommended as there are risks involved.
Home Reversion – You will sell all or part of your property to the reversion company and in return you will receive a cash lump sum, a regular income or a combination of both. Although you will have the right to live in the property, you won’t retain full ownership like you would with a lifetime mortgage. When you die or go into care, the property will be sold and the sale proceeds are shared according to the remaining proportions of ownership.
Investing your cash into investment bonds where the bond is written as one or more life insurance policies that contain cashing-in rights by way of options for total or partial surrender, then the value of those rights may be disregarded as a capital asset in the financial assessment. However, the income from the investment bond may be included in the financial assessment.
Care Fees Planning Solicitors in Aberdeen and Stonehaven
Ultimately, mitigating care home costs can never be guaranteed because the Local Authority can challenge your exemption for paying care home fees – which can only be aided if you have a significant reason for giving away your property.
There are many avenues for consideration when planning for the future and we strongly recommend contacting us to discuss your situation in the first instance. Following an initial discussion, we can put you in contact with a financial advisor if we believe this would be beneficial for your situation.
If you are thinking about paying for care fees in future or considering any of the above options please contact one of our solicitors today by calling 01224 087284 or complete our online enquiry form and a member of the team will be in touch.