Will my family receive any inheritance or will it all go in paying for my care?
Clients often comment that they find the care system in England and Wales to be grossly unfair.
The question raised is why, when I’ve worked hard all my life, should I have to pay for nursing home care when those they don’t have anything and have lived off benefits all their lives get it for free?
This is a valid point. Costs of care are really high and those without any assets get funded entirely by the state.
The key difference however is the standard of care. Those with assets (house, savings etc) have a choice as to what care home they go into and the standard of care they receive. Those without any assets get put into a home and have no or limited choice over the type of home they move into, the facilities on offer and the standard of care available.
When planning for care I also remind client’s that the money in their possession is their own. They have worked hard for it so why shouldn’t that money be used to keep them in their old age? Yes it’s nice to be able to provide for the next generation by way of an inheritance but why limit your own comfort for the advantage of saving money for others?
The next point I make to clients is that, if you are in severe bad health and you need to go into care you may be eligible for NHS funding. If so, this means that the state pays for your care costs whether you have assets or not and you get placed in an NHS care home where you will receive 24 hour care. The difficulty with the current system is that it is very difficult to qualify for NHS care and quite often people are not eligible for long. There have been rumblings that this system will be reviewed and it will be made easier to qualify but to date no changes have been announced.
Will I have to sell my house?
There is a misconception that when a person goes into care their house is sold straightaway to pay for it. This is not the case.
When a person moves into care the local authority carry out a financial assessment to determine to what extent you have to pay for your care costs.
This assessment involves looking at capital assets including:
• Savings and investments
• Property
• Income
If you own a property and are not eligible for NHS funded care you will need to pay for your care in full and your property will be taken into account for the assessment unless:
• Your spouse or partner lives within the property,
• or a close relative who is either over 60 or incapacitated lives there,
• or your minor child lives there or
• your ex spouse/ex partner who is a single parent lives there.
If none of the above apply then the House will be taken into account for the assessment. However, a 12 week disregard applies so that it is ignored for this period of time.
The assessment will look to see how much capital you have. If you have over £23,250 you will have to pay the full costs of your care until it reduces to that level at which time you can apply to be reassessed.
If you have between £14,250 and £23,250 in savings then the capital is treated as giving you income of £1 per week for every £250 worth of savings and this will be your contribution towards your care.
If you have less than £14,250 in capital then it will be ignored in calculating how much you must pay towards your care and you will be state funded.
The assessment of income will also be made to determine how much is paid directly towards your care. No matter how much is paid towards your care you must be left with at least £22.30 a week to spend as you see fit.
Often instead of selling the property the local authority will accept a “legal charge” on the house. This means that they will put a “mortgage” on your property so that when you pass away the fees are paid once the house is sold rather than in advance. At present, many local authorities are offering interest free charges in this respect which continue to be free of interest until 2 months after the date of death and even then attract very low interest charges compared to commercial loans.
If a charge is put against your property whilst you are in care (providing you have a valid enduring or lasting power of attorney) your attorney can explore ways to reduce the charge. i.e.
1. By renting out your home to tenants. Whilst this is unlikely to cover more than one or two weeks of your care costs every month at least it reduces partially the amount payable;
2. Equity Release might be an option subject to interest rates although this is unlikely to be on preferable terms to the local authority charge;
3. By selling the home and investing the funds in various annuities or products which will generate enough income to pay your care costs each month whilst safeguarding a set amount for your family to inherit.
It should also be remembered that if you have a generous amount of pension paid every month this will also reduce your care costs.
For example if your care costs are £500 per week and you receive £1,500 in pension each month through a combination of your private pension and state pension then only 1 weeks payment a month is missing and will need to be paid from elsewhere. If you can rent your home out for more than £500 a month then your care costs are covered in total without decreasing the value of the inheritance for your family.
Should I gift my house away?
Often people attempt to avoid paying care fees by either transferring their property into their children’s names or selling their house and giving the money to their children and then moving in with their children. If the intent of this action is to “avoid” paying care fees then this is firstly illegal and secondly is unlikely to work as the local authority can take you to Court to overturn the transfer. This will leave you with a large legal costs bill to pay, plus having to pay all your care costs.
Even if such an arrangement was to work you would be left with no assets and therefore the standard of care home you move into would be far less than if you were privately paying.
Further gifting your home to another is risky. Consider what would happen if:
• Your son or daughter gets divorced – as your house is in their name it will be treated as a matrimonial asset and strictly speaking will be available for distribution to your former son or daughter in law;
• Your son or daughter is made bankrupt – they own your house so their creditors can force its sale to repay their debts;
• Your son or daughter passes away without making provision for you in their Will – this could leave you having to fend off their beneficiaries and face the uncertainty of not knowing if you will be forced to move out or not;
• Your son or daughter falls out with you – if this occurs they could throw your out and arrange to sell your property and as you don’t own the home anymore there isn’t anything you can do.
Should I gift my house to a trust?
Often Will writing companies and other non solicitors suggest transferring your house into a trust so that you no longer own it and therefore when you move into care it cannot count towards your care funding. It’s often sold as a “miracle cure” to avoid paying care fees.
My advice is to be very wary of such schemes.
Firstly, they can be costly to set up. I would expect between £2,000 and £4,000 and often they have ongoing charges connected to them i.e. one such scheme I saw advertised recently wanted £200 a year every year to administer the trust even though in reality, once the trust is set up, if nothing changes the trustees would not be doing much work.
Also, it is possible that such a trust won’t have the desired effect in any event. If the trust is not drafted property it could be considered that you still own the house and it could still be taken into account for care home funding.
Even if it is drafted adequately it is possible that the local authority will examine the merits and reasoning behind why it was set up? If they find it was merely an elaborate way to avoid paying care fees then they could, at least in theory, apply to have the transfer overturned. I’m not aware of any cases where this has occurred to date but I am sure it will not be long before a local authority attempts this.
Also a trust can be very costly for your family in terms of taxes. A trust attracts income tax at the rate of 50% meaning if it is rented to tenants you will lose half of that monthly income.
Inheritance tax charges may be payable on:
1. Creation of a trust if your house exceeds a certain value;
2. Every 10 year anniversary of the trust; and
3. When the House is eventually sold.
If the trust doesn’t deal adequately with a right of occupation for you, or you move into care and it is only later that the house is sold then capital gains tax may be payable on the sale of your property.
Also if the scheme is successful how will you pay for your care? A state funded standard of care home and a large tax bill for your family plus a drop in your savings to pay for the trust and a decrease in your spare income due to paying the management charges of the trust don’t seem like a miracle cure to me!
For the above reasons solicitors do not tend to recommend the creation of such schemes.
So what can I do?
Firstly, you should create a Lasting Power of Attorney. This is a special type of Power of Attorney which will enable somebody to act on your behalf in respect of your financial affairs and property matters or to make decisions in respect of your welfare in the event of your becoming unable to deal with these matters as a result of a physical or mental disorder, due to an accident or illness, for example, remaining unconscious after an accident.
It will enable your attorneys to put measures in place to ensure you stay in your own home for as long as possible (should you wish to do so) and if you inevitable have to go into care to consider those funding options detailed above.
Secondly you could update your will to ensure that part of your house (if you own jointly with another) is safeguarded from care fees should one of you die and the survivor need to go into care.
Michael Culver is a Solicitor in the firms Private Client Department and a professional member of Solicitors for the Elderly (SFE), an associate member of The Association of Contentious Trusts and Probate Specialists (ACTAPS) and a student member of the Society of Trust and Estate Practitioners (STEP).
To discuss matters further please contact the private client team at Hilliers HRW Solicitors on 01234 858000 or 01438 346000.
Leave a Reply