As the cost of residential care rises more people are attempting to protect their home from local authorities so that they can avoid paying for care. As a solicitor, I have lost count of the number of times clients (or their children) have asked me about transferring their home to their children because they do not want to have to pay for their care fees. My response is that giving away your home does not mean you will not need care in the future but it does mean that your choices of care provider will be limited.
Unfortunately it is a common misconception that you can give away your home to avoid paying for care and that if you do not then move into care for at least another 7 years your home will be protected. This is not the case. If a Local Authority is required to fund someone’s care they will undertake a financial assessment. If they find that the individual has deliberately deprived themselves of an asset that could have been used to pay for their care then it is able to take that asset into account as notional capital. What is deliberate deprivation of assets? Deprivation of assets means where a person has intentionally deprived or decreased their overall assets in order to reduce the amount they are charged towards their care. This means that they must have known that they needed care and support and have reduced their assets in order to reduce the contribution they are asked to make towards the cost of that care and support. By way of example Mr Jones gave his home to his children. He developed dementia and entered residential care. His local authority treated the gift of the home as a deliberate deprivation because prior to the gift Mr Jones had been making occasional use of a local authority run day centre. They did this even though 8 years had passed since the gift was made.
As the cost of care has gone up the schemes have become more inventive and you see advertisements for “home protection plans” or “asset protection trusts” or “bloodline trusts” that work by transferring the ownership of assets such as your home into trusts to avoid being means-tested for care fees. Such schemes are costly to set up and costly to untangle.
Whilst trusts in inheritance tax planning can be used for great effect for individuals with modest assets they should be avoided if they are set up for the sole purpose of avoiding care fees.
If a local authority identifies deliberate deprivation then it can access and review financial assessments, legal documents, evidence from local authority departments or health organisations and correspondence between a solicitor and their clients. Subject to any challenge to its decision the local authority has statutory authority to recover any assets that have been given away.
In conclusion making gifts to avoid care home fees is not advisable. However as part of an overall approach to estate planning a decision as to whether to pass assets to your children is wholly legitimate for example by setting up life interest trusts in your wills or looking at the best way to manage your finances. If you would like any advices about these matters then please do contact us on enquiry@dixonstewart.com or telephone and make an appointment.