A Strategy to Protect the Family Home from Contributing to Care Fees
Anecdotal evidence suggests that anything between 40,000 and 70,000 are sold each year to cover the owner’s care fees.
Parents are also seeing the nest eggs built up as intended inheritances for their children decimated over short periods once in care.
With advance planning this need not be the case. There are ways to protect the family home for the next generation.
This guide highlights the opportunity for planning, briefly describes some of the relevant regulations and suggests a simple strategy to protect the family home.
Many elderly people are desperately looking for a way of protecting their estate to pass it on to the children and to avoid it being wiped out by care home fees.
Giving the home away to the children is sometimes seen as the solution (not to be recommended). There is also the misconception that if you give the home away more than 6 months before going into care, the local authority cannot touch it. There is a so called “six month rule” in the legislation, but this rule only applies under certain circumstances and should not be relied on. In the real world, many local authorities have rules of thumb; some will only look back over one or two years, but some will look back much further. “Deliberate deprivation”, as it is known, is a relevant concept and makes things much more difficult.
Cash strapped local authorities are cracking down on people who they think are trying to avoid paying care fees and they are becoming increasingly sceptical about people saying gifts were made due to the natural love and affection for their children. We will show you a recognised planning technique which can help to shelter the family home.
The Basic Position
Those who cannot afford to pay privately for care must look to the local authority for funding or assistance with funding. The resident has free choice of home, subject only to the fee level quoted, which is usually within the funding arrangement available to the local authority.
Both income and capital resources are assessed.
- Above capital of £22,500, no contribution will be made by the local authority
- Below £13,000, a full contribution will be made by the local authority
- Between £22.500 and £13,000, there is a partial contribution made by the local authority
Virtually all income is assessable. The principal exception relates to part of an occupational pension in certain circumstances. A small amount of income (Currently £19.60 per week) is not assessed, amounting to little more than pocket money. This is literally intended to cover toiletries, hairdressing etc.
We are focusing on the family home. Advice on other capital is available upon request.
The starting position is that the home counts as capital for financial assessment purposes. The value of the home, or an interest on it, is taken account of as a capital asset. It comes into the reckoning for means testing at its market value, less 10% (assumed costs of sale) and less mortgage liability. Once sold, the home simply comes in as cash.
The home is disregarded under certain circumstances:
- During the first 12 weeks of care
- During temporary or respite care
- If it is occupied by a husband, wife or unmarried partner
- If it is occupied by a close relative over the age of 60 (or under the age of 16)
- If it is occupied by a relative under the age of 60 who is disabled
The local authority may, at its discretion, ignore the value of the house if it the permanent home of a carer, or in one or two other limited situations. Clearly the local authority’s discretion ought not to be relied on.
The solution is to ensure that the home is not personally owned on entry into care. The local authority’s financial assessment can then legitimately and properly be completed on the basis that the home is not a capital resource of the resident.
The solution involves putting the home into a trust, so that the trustees are the owners.
Features of the trust are:
- The former owner has guaranteed right of residence in the property for the remainder of his or her life. The trustees, usually the children, cannot evict the former owner in any circumstances.
- The former owner has the ability to direct the trustees to sell the property and to buy a new property of the former owner’s choice. The former owner can therefore move property or trade down. The trustees have no choice in the matter. Of course, in the rare circumstances where the new property might be more expensive, the trustees can only be required to buy the new property if the additional capital needed is provided by the former owner.
- If the property is sold, for whatever reason, and a new property is not bought, usually if the former owner is entering care, then the proceeds of the sale will be invested and the former owner will received the interest or income earned on the invested capital.
- On the death of the former owner (or the second of two former owners), but not before, the property, or its proceeds of sale, passes to the chosen beneficiaries; the trust at that point operates similarly to a will.
The Trust described above is equally applicable to married couples as to single owners. In fact, married couples entering into the strategy will have the additional advantage that they do so at a time when if one of them went into care, the home would in any event be disregarded due to the other spouse living in it.