Can I protect my home from care home fees?

The recent Channel 4 Dispatches programme “How to avoid the Dementia Tax” explored the “political hot potato” that is the provision of social care. An increasing number of elderly people are being forced to sell their homes to pay for care fees. With the number of 85 year olds set to double by 2030, this is a situation that is only going to get more critical.

Under the current system, the local authority will conduct a means test to determine how much you have to pay towards your care. The means test takes into account your income, savings and property.  If the total figure is greater than £23,250 it is likely that you will have to self-fund your care fees.

Will my home be included in the means test?

Your home will not be counted if it is still occupied by:

• your partner or former partner, unless they are estranged from you
• your estranged or divorced partner if they are also a lone parent
• a relative who is aged 60 or over
• a child of yours aged under 18
• a relative who is disabled.

Additionally, if you need temporary (52 weeks) or short-term (6 weeks) care only, your home won’t be included in the means test.

What you can’t do

• Transferring your house to your children: If you transfer your house to your children with the intention of avoiding care fees, this will be deemed as a deliberate deprivation of assets. If the local authority are able prove that a significant motive of you giving away your house was to obtain financial assistance with your care home fees sooner than would otherwise be the case, they will disregard the transfer and assess you as if you still owned your home. The local authority will carry out investigations into the timing of the transaction and your motives for doing so. There is no time limit on how far back they can investigate.

Caution should also be advised when considering such a transfer because once you have given away your home, the property is no longer yours and you will have lost control of it:

• Death: if a child of yours dies before you then their interest in the property would pass under their Will or if they have not made one, under the intestacy rules. Therefore, your ability to stay in the property would be at the mercy of the beneficiaries of your children’s estate, not your children
• Bankruptcy/Divorce: if a child of yours becomes bankrupt then the house may have to be sold to pay creditors.  If a child gets divorced then it is possible that the property will be taken into account in the matrimonial settlement
• Reservation of benefit: if you give away your house, but continue to live there, then for inheritance tax purposes, it would be caught by the gift with reservation of benefit rules. The property would be considered as part of your estate at its value at the date of the gift or at the date of your death, whichever is the higher
• Capital Gains Tax: if you give your house to your children and they already own their own home and the property increases in value between the date of the gift and a subsequent sale, then that gain would not benefit from the main residence relief exemption and could be subject to capital gains tax.

What you can do

There are still options available for legitimate estate planning if appropriate to your circumstances:

• Will Trust: You can make a Will which is structured to help protect your estate for those you are leaving behind. This could be beneficial if you have married again and have children from a previous marriage, or could also protect against care home fees. The aim of such a Will is that it would ring fence, within a trust, the value of the interest in the property (and if appropriate other assets) of the first spouse or civil partner to die. The purpose of this is to ensure that these assets do not pass outright to your surviving spouse and form part of their estate. Your spouse would still own her/his half of the house and this could be taken into account in a care home fees assessment, when s/he goes into care, however, your half would be protected for your ultimate beneficiaries.
• Co-owning and co-occupying: Although this type of arrangement will not be for everyone, in certain circumstances, it may be appropriate. It is possible to avoid being caught by the gift with reservation of benefit rules by gifting a share in your house to your children and occupying the property together. It is essential in such an arrangement is properly documented, and that consideration is given to how the outgoings are paid for example. This type of sharing arrangement would still be vulnerable to changes in family circumstances, such as divorce or bankruptcy.

For further information please get in touch.